System and method for creating electronic real estate registration

ABSTRACT

A system for providing a registered land asset includes a property transaction database in communication with a computer network the property transaction database provides information related to transactions associated with each registered land asset parcel, each land parcel having a registered land asset identifier representing global coordinates particular to the parcel. The system also includes a location characteristic database in communication with the computer network. The location characteristic database provides socioeconomic data regarding the location wherein the land parcel associated with the registered land asset is situated. A registered land asset contract may give a leaseholder an option to purchase the land by the end of a given term. A computer receives data from the property transaction database and the location characteristic database via the computer network and calculates prices and values associated with a registered land asset contract associated with the land parcel and a registered land asset contract is recorded in association with the land asset identifier corresponding to the land parcel in an electronic land title registry in communication with the computer network.

RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.11/291,358, filed Nov. 30, 2005, entitled SYSTEM AND METHOD FOR CREATINGELECTRONIC REAL ESTATE REGISTRATION, which claims the benefit of U.S.Provisional Application 60/632,473, filed Nov. 30, 2004, entitled SYSTEMAND METHOD FOR CREATING ELECTRONIC REAL ESTATE REGISTRATION, the entiredisclosure of each of which applications is herein incorporated byreference.

FIELD OF THE INVENTION

The present invention relates to systems and methods for valuing,pricing, acquiring and electronically recording real estate interests,such as, for example, in book entry form. Such systems and methodsrelate to systems and methods that produce or enable an accounting ofsuccessive transactions of real estate interests among and betweencapital market and real estate market participants.

BACKGROUND OF THE INVENTION

Land is the first economic hedge for mankind Land is a place to beginand to try again. Land underlies all and land is limited. As Mark Twainonce said, “Buy land. They've stopped making it.”

Government-sponsored enterprises (“GSEs”), such as Fannie Mae (theFederal National Mortgage Association), Freddie Mac (the Federal HomeLoan Mortgage Corporation), and the Federal Home Loan Bank System areshareholder-owned corporations, working under a Congressional corporatecharter. Each of these entities serves as an instrument of nationalhousing policy to facilitate homeownership. They provide funds forlow-cost mortgages to low/moderate and middle-income Americans. FannieMae and Freddie Mac are the two largest entities of their kind and theirrapidly increasing debt load represents forty percent of the investmentgrade bond market.

Currently, GSEs use derivative instruments to supplement their debtissuance, to hedge their interest rate and prepayment risks, and tomanage their bond duration profile. They use interest rate swaps totransform short-term debt into synthetic long-term debt, andoption-based derivatives to hedge prepayment and loan default activityon their assets. Fannie Mae has reported that the aggregate notionalamount of its derivatives portfolio as of year-end 2003 was $1.04trillion, accounting for approximately 0.5% of the entire globalderivatives market.

Given the extraordinary volume of derivatives on GSE balance sheets, anyinstability GSEs may experience is likely to cause systemic ripplesamong its counterparties. Extensive use of derivative instruments andthe lack of transparency of the derivative instruments have raisedconcerns among policy makers who are uneasy with the growth in debt loadand counterparty hedge exposures. The numbers are large and the interestrate swaps, options, and caps counterparties use as financial tools mayno longer be sufficient to offset the expanding debt the GSEs carry andthe counterparties (e.g., the several largest United States banks)ensure.

Low interest rates and the continued rise of homeownership have led torapid growth in the mortgage market in recent years coupled with anincreasing rate at which mortgages are being refinanced. Since, FannieMae and Freddie Mac dominate the mortgage market, any instability amongthese entities could cause significant financial stress in the UnitedStates. Instability in similar international enterprises could causestress in financial systems worldwide.

In 1994, the U.S. General Accounting Office expressed concern thatfailure by a large end-user of derivatives could lead to the followingsequence of events: 1) one or more dealers who are counterparties coulddefault, causing a chain reaction of counterparty defaults; 2) theopaqueness of derivatives and increased uncertainty associated withthese derivatives could result in a general lack of liquidity or afreeze-up of over-the-counter derivatives markets, forcing dealers andothers to use the more liquid exchange-traded futures and optionsmarkets, and leading to price breaks in those markets; and 3) pricebreaks in such markets could spread to markets for other assets andcreate widespread uncertainty about asset values, which could generatewidespread panic which, in turn, could lead to widespread selling andplunging asset values throughout the world.

SUMMARY OF THE INVENTION

In accordance with embodiments of the present invention, systems andmethods are provided to structure land sale economics such that aleaseholder gains economic advantage while holding favorable land userights as well as a right to acquire the underlying land at price thatis likely to remain within the leaseholder's economic reach.

The systems and methods provide the capital markets and the real estatemarket alternative financial instruments, which help to reduce economicrisks brought about by underlying derivative failures or increasingmortgage market debt loads, while improving transactional transparencyand limiting the opportunity for real estate market price breaks.

Further systems and methods of the invention enable a sponsor to conveyto a holder or investor, in exchange for the use of its capital for theduration of a land purchase option term, a low risk, unleveraged capitalasset that earns a competitive return as a real estate investment andthat can be publicly exchanged electronically via a computer network.

In accordance with an embodiment of the invention, a method fororiginating a registered land asset includes obtaining, via a computernetwork, at least two of: i) a market value of a parcel of land; ii) amarket ground rent associated with the parcel of land; and iii) a landcapitalization rate associated with the land. A price associated with anoption to purchase the land at the end of a given term is calculated,and a registered land asset contract is offered to an investor. Theregistered land asset gives the investor ownership of the land subjectto the option. In accordance with a related embodiment, the method mayalso include obtaining, via a computer network: a purchase option term;a prevailing investor cost of capital; prevailing mortgage market terms;and a market land value appreciation rate. A land investment valueassociated with the purchase of the land may then be calculated. Inaccordance with a further related embodiment, impacts that externalitieshave on the market land value associated with the registered land assetmay also calculated. Obtaining the market value of a parcel of land mayinclude determining if the land title is encumbered. Additionally,offering a registered land asset contract to an investor may includeoffering a zero coupon asset contract, offering an income assetcontract, or offering a bonded asset contract. Obtaining a market valueof a parcel of land may include obtaining a land valuation report.

In accordance with another embodiment of the invention, a method forestablishing an electronic land title registry includes determining ageo-referenced address based on a global coordinate position of the landsubject to a land title deed and causing a land title deed andregistered asset identifier to be recorded in association with oneanother in an electronic database. The registered asset identifierrepresents the geo-referenced address. The method also includes causinga registered land asset contract to be recorded in association with theregistered asset identifier. In accordance with a related embodiment,the method may also include causing a land title deed and the registeredasset identifier to be recorded in association with one another in thelocal land court. In accordance with another related embodiment, themethod may also include allowing the stored registered land assetidentifier to be appended to include other information relating to theregistered land asset. The geo-referenced address may include auniversal transverse mercator (UTM) grid code. Additionally, theregistered land asset identifier may be appended with a sequentialequity allocation lien (the “SEAL”) identifier and the SEAL identifiermay include one of: a date associated with the SEAL identifier, a timeassociated with the SEAL identifier, a document associated with the SEALidentifier, document type associated with the SEAL identifier and adocument preparer associated with the SEAL identifier. The registeredland asset identifier may also be appended with a vendor identificationnumber (the “VIN”).

In accordance with another embodiment of the invention, a computerprogram product for use on a processor for determining prices and valuesassociated with a registered land asset includes a computer usablemedium having computer readable program code thereon. The computerreadable program code includes program code for obtaining, via acomputer network, at least two of: i) a market value of a parcel ofland; ii) a market ground rent associated with the parcel of land; andiii) a land capitalization rate associated with the land; and programcode for calculating a price associated with an option to purchase theland at the end of a given term. In accordance with a related embodimentthe computer program product may also include program code forobtaining, via a computer network: a purchase option term; a prevailinginvestor cost of capital; prevailing mortgage market terms; and a marketland value appreciation rate and calculating the land investment valueassociated with the purchase of the land. In accordance with otherrelated embodiments, the computer program product may also includeprogram code for calculating a land par value associated with theregistered land asset, program code for calculating land sale proceedsassociated with the registered land asset, program code for calculatingan embedded call settlement price associated with the registered landasset and/or program code for enabling vendors to access the electronicland title registry via a computer network or the internet. The programcode for enabling venders to access the electronic land title registrymay include program code for identifying an assigned vendoridentification number (VIN).

In accordance with yet a further embodiment of the invention, a systemfor providing a registered land asset includes a property transactiondatabase in communication with a computer network. The propertytransaction database provides information related to transactionsassociated with each registered land asset parcel, each parcel having aregistered asset identifier representing global coordinates particularto the land parcel. The system also includes a location characteristicdatabase in communication with the computer network. The locationcharacteristic database provides socioeconomic data regarding thelocation wherein the land parcel associated with the registered landasset is situated. A computer (used by anyone with access to thenetwork) receives data from the property transaction database and thelocation characteristic database via the computer network and calculatesprices and values associated with a registered land asset contractassociated with the land parcel. The registered asset contract isrecorded in an electronic land title registry in communication with thecomputer network in association with the registered asset identifiercorresponding to the land parcel. In accordance with a relatedembodiment, one database may include both the socioeconomic data and theinformation related to transactions associated with each registeredasset parcel.

In accordance with another embodiment of the invention, a method forexchanging registered land assets includes selling a registered landasset relating to land identified by a registered land asset identifier.The registered asset identifier represents a geo-referenced addresssubject to a registered asset land contract giving a leaseholder anoption to purchase the land by the end of a given term. The sale of theregistered land asset is recorded in association with the registeredland asset identifier in an electronic land title registry.

BRIEF DESCRIPTION OF THE DRAWINGS

The invention description below refers to the accompanying drawings, ofwhich:

FIG. 1 is a flow chart illustrating one method for originating aregistered land asset in accordance with one embodiment of theinvention;

FIG. 2 is a flow chart illustrating a method for determining aprospective leaseholder's qualifications to participate in a registeredland asset contract in accordance with another embodiment of theinvention;

FIG. 3 is a block diagram illustrating land sale distribution options inaccordance with a further embodiment of the invention;

FIG. 4 is a block diagram illustrating a method for determining valuesand prices associated with a registered land asset; and

FIG. 5 is a block diagram illustrating possible components of aregistered land asset contract;

FIG. 6 is a block diagram illustrating a method for establishing anelectronic land title registry in accordance with yet a furtherembodiment of the invention.

FIG. 7 is a block diagram illustrating examples of registered land assetinvestor qualifications and considerations;

FIG. 8 is block diagram illustrating examples of registered land assetsponsor qualifications and considerations;

FIG. 9 is a flow chart illustrating an interim pricing method inaccordance with another embodiment of the invention; and

FIG. 10 is a block diagram illustrating a system for providing aregistered land asset.

DETAILED DESCRIPTION

The financial products derived herein provide secondary mortgage marketparticipants with an ability to reduce economic risks brought about byderivative failure and increasing debt loads. Embodiments of the presentinvention improve transactional transparency and limit the opportunityfor real estate market price breaks.

As used herein, registered land assets are interests in real propertyland titles that may be held in book entry (or other) form such thatthey are suitable for sale or sale, transfer or exchange into andbetween both capital market and real estate market participants.Registered land assets may offer a fixed rate of return under contractas well as equal or superior collateral value and yield when compared tohigh-grade corporate bonds and certain mortgage-backed debt instrumentsof equal duration. For example, in accordance with one embodiment of theinvention, a ten year registered land asset may deliver a total returnconsistently higher than equal term interest rate swaps, many highquality corporate bonds and 30-year mortgages.

DEFINITIONS

As used in this description and the accompanying claims, the followingterms shall have the meanings indicated, unless the context otherwiserequires:

Bonded Asset: A registered land asset wherein the issuer guarantees theperformance of registered land asset contract terms directly and/orthrough an insurance policy, which guarantees the embedded callsettlement price at maturity. A government agency, a qualifiednon-profit enterprise and a local housing authority are examples ofissuers that may guarantee registered land asset contract termsdirectly.

Community Score: A factor representing the effect externalities have onthe value of real property.

Embedded Call: A land purchase option that is part of and trades withthe registered land asset. Generally, the land may be repurchased at aspecific price and time established during registered land assetcontract origination.

Free Asset: A registered land asset wherein the embedded call hasexpired.

Holder: A registered land asset contract owner.

Income Asset: A registered land asset wherein land sale proceeds paid inexchange for the land title underlying the registered land asset aregreater than the present worth of its calculated land par value, butless than the appraised market land value determined at the time of theexchange, and wherein a ground rent is due to the holder for a period oftime.

Investor: Investors may include, but are not limited to, high net worthinvestors that meet the definition of an “accredited investor” asdefined in accordance with law, including high net worth investorsinterested in like-kind property exchanges and institutional investorsincluding, but not limited to insurance companies, pension funds, mutualfunds, real estate investors, developers, and dealers. FIG. 8 is a blockdiagram illustrating registered land asset investor qualifications andconsiderations.

Land par value: The sum of all future economic values aleaseholder/issuer might expect as compensation for its land.

Leaseholder/Issuer: A current or prospective landowner that causes theissuance of a registered land asset.

Leasehold estate: Improvements and personal property above the land,including, but not limited to, all existing or proposed buildings,machinery, wells, septic systems, storm drains, paved parking lots andlandscape features.

Originator: An entity qualified to offer a registered land assetcontract.

Purchase Partner Leasehold Mortgage: A mortgage associated with aleasehold estate that is subject to registered land asset contractprovisions, and that may be recorded with the registered land asset andbe accessed by a registered land asset contract originator or servicingagent.

Registered Land Asset: A financial product representing a leased feeequity interest in land, typically recorded in an electronic land titleregistry, which is available for sale, transfer or exchange within andbetween the capital markets and the real estate markets via abookkeeping and/or book entry method. Typically there is a registeredland asset contract associated with the registered land asset product,which defines any terms associated with a land use, ground rent and anembedded call.

Sponsor: An individual or entity providing capital to consummate thesale of land associated with a registered asset. Such an entity mayinclude a special purpose entity. FIG. 9 is a block diagram illustratingregistered land asset sponsor qualifications and considerations.

Zero Coupon Asset: A registered land asset wherein land sale proceedspaid in exchange for the land title underlying the registered land assetare equal to or less than the present worth associated with land's parvalue, and wherein no ground rent is due.

As will be explained in more detail below, a current or prospectivelandowner may sell its land through an originator. The capital tounderwrite and consummate the sale may be provided by a sponsor. Thesponsor may represent itself, one, or several investors, or entities. Anoriginator typically delivers a registered land asset application andany associated contract terms to an underwriter (typically appointed bythe sponsor) for review. A ground lease encumbers the land and conveysspecific land use rights to present and/or future leaseholders. Theseland use rights, (together with any other registered land asset contractterms) enhance the marketable value of the leasehold estate. Theseenhancements may build up the economies of the leasehold estate as wellas its mortgage collateral values.

A holder (which may be a capital investor) buys a registered land assetfrom the sponsor. An indenture trustee or a transfer agent typicallyrepresents the holder. Each registered land asset is recorded in anelectronic land title registry under the management of a special purposeentity (“SPE”) for the duration of the registered land asset contract.

All registered land asset contract types originate with an embeddedcall. As stated above, the embedded call may enable a leaseholder topurchase the land title underlying its leasehold estate at apredetermined price and date.

A registered asset identifier (“RAI”) identifies each registered landasset once recorded within the land court having jurisdiction over theland title and stored in an electronic land title registry or other datarepository. All data and analysis associated with the registered landasset may become an addition to a data set associated with the RAI. Inthis manner appraisal, engineering and other data may be accumulated.The accumulation of data associated with registered assets enablesqualitative comparison analysis and each new registered land assetorigination may become an information resource. As sales of registeredassets and leasehold estates begin to accumulate, repeat sales analysisand forecasting become possible. Consequently, market performance may bemeasured as a basis for risk analysis and market pricing.

Registered Land Asset Origination

A prospective leaseholder may initiate a registered land asset contractvia an originator. The originator is typically a mortgage lender but mayalso be, but is not limited to, a real estate broker, real estate agent,financial planner, financial advisor, or housing agency. Further, aregistered land asset mechanism may be accessed via a network, such asthe Internet, to determine if and to what extent that such a registeredland asset may enable a prospective leaseholder to purchase property.Similarly, a registered land asset may be originated directly by aprospective leaseholder via an origination process that may be accessedvia a computer network such as the Internet.

A registered land asset contract contains all contracts and agreementsbetween all parties to include land asset issuer, sponsor, holder, andlender if a mortgage is given. Together the registered asset contractbundle becomes the foundation upon which mortgage underwriting emerges.The optional purchase partner leasehold mortgage becomes a part of the“contract bundle” for disclosure and transparency reasons. A purchasepartner mortgage lowers lenders' collateral risk, and can be easilydistributed to and owned by a third party lender. Risk pricing andsettlement terms between a mortgagee, mortgagor and any sponsor shouldreflect local market criteria, and remain a separate agreement betweenthose parties. The registered asset contract contains core provisions toprotect holders' interests, which do not change due to negotiatedmortgage financing terms. Loan terms may build upon but not changeregistered land asset core provisions, which contribute to theconsistent quality of each registered land asset as a freestandingfinancial product.

FIG. 1 is a flow chart illustrating one method for originating aregistered land asset in accordance with one embodiment of theinvention. In process 101, market value of land associated with theregistered land asset is obtained. Such information may be obtained viacomputer network and/or may be provided by an appraiser or an appraisalreport. In process 102, the originator obtains a market ground rentassociated with the registered land asset contract. The originatordetermines 103 contract terms associated with an embedded call(including value, price and timing terms) and offers a registered landasset contract to the leaseholder in process 104. While in the exampleof FIG. 1 only a market value of the land and a market ground rent areobtained, it should be noted that the originator may obtain any two of:a market land value, a market ground rent and a land capitalization ratefor land associated with the registered land asset. Given any two ofthese three elements, the other may be calculated.

FIG. 2 is a flow chart illustrating a method for determining aprospective leaseholder's qualifications to participate in a registeredland asset contract in accordance with another embodiment of theinvention. FIG. 2 is offered as an example of one such assessmentprocess and it should be understood that the process may alter in lightof particular circumstances. Typically, an originator will determine 201if the prospective leaseholder is the owner of the identified land. Ifthe prospective leaseholder is not the owner of the identified land, theoriginator will typically determine 202 if the prospective leaseholderhas obtained a purchase and sale contract with respect to the identifiedland. If the prospective leaseholder has not obtained a purchase andsale agreement, the prospective leaseholder may be denied 203 aregistered asset. If the originator determines the prospectiveleaseholder has a purchase and sale agreement, or if the prospectiveleaseholder is the current landowner, the originator will determine 204if the land has existing improvements. If the land is vacant andsuitable for an intended use, the originator may obtain 205 the marketland value (typically, the market land value as though the land isavailable for its highest and best use) and market ground rentassociated with the identified land. Alternatively, the originator mayobtain a land capitalization rate associated with the identified landand use a pricing mechanism, such as the pricing mechanism describedbelow.

The originator may then determine 206 if, given the market land valueand market ground rent, the land purchase creates an acceptablefinancial and/or underwriting risk. If the market land value and themarket ground rent indicate unacceptable financial and/or underwritingrisk, the prospective leaseholder may be denied 207 a registered asset.If the risk is acceptable, the originator may determine 208 if theprospective leaseholder has bonding authority. If the prospectiveleaseholder does not have bonding authority, the originator may offer209 the prospective leaseholder a zero coupon asset or an income asset.(The attributes and characteristics of such assets are discussed indetail below.) If the prospective leaseholder has or a third party willprovide bonding authority and will guarantee or insure the registeredland asset embedded call settlement price, the originator may offer 210the prospective leaseholder a bonded asset.

If the land is improved, the originator may determine 211 to what extentthe property is encumbered. If the property is encumbered, theoriginator may determine 212 if the sum of the land sale proceeds, theoutstanding mortgage loan, and the settlement value to clear otherencumbrances exceed the underwriting value of the property. If so, theprospective leaseholder may be denied 213 a registered asset.

If the property is not encumbered, the originator may determine if theprospective leaseholder would like to or needs to offer a mortgage 214.If the prospective leaseholder does not want to offer a mortgage, theoriginator will obtain 215 the market land value and the market groundrent associated with the registered asset. The originator may determine216 if the market land value and the market ground rent indicate anacceptable financial or underwriting risk. If the market land value andthe market ground rent indicate an unacceptable financial and/orunderwriting risk, the prospective leaseholder may be denied 217 aregistered asset. If the risk is acceptable, the originator maydetermine 218 if the prospective leaseholder has or a third party willprovide bonding authority and will guarantee the registered asset; andif so, offer 219 a bonded asset. If the prospective leaseholder does nothave bonding authority or elects not to insure the payment of theembedded call settlement price, the originator may again offer 220 azero coupon asset or an income asset.

If the prospective leaseholder would like to offer a mortgage, theoriginator may obtain 221 the market land value and a correspondingmarket ground rent. In addition, a mortgage lender may require a marketvalue for proposed or existing improvements on the property. Theoriginator may determine 222 if the market land value and market groundrent (and, perhaps, the market value for improvements on the property)indicate an acceptable financial and/or underwriting risk. If the marketland value and the market ground rent indicate unacceptable financialand/or underwriting risk, the prospective leaseholder may be denied 223a registered asset. If the risk is acceptable, the originator maydetermine 224 if the prospective leaseholder has or a third party willprovide bonding authority. If the prospective leaseholder does not havebonding authority, the originator may offer 225 the prospectiveleaseholder a registered land asset as a zero coupon or income assetthat may be accompanied by an optional leasehold mortgage. If theprospective leaseholder has bonding authority and will or may guaranteethe registered land asset contract directly or through a third party,the originator may offer 226 the prospective leaseholder a bonded asset.

The prospective leaseholder may then receive the land sale proceeds inexchange for a good and marketable leased fee land title. Theleaseholder (also the issuer, in this case) also receives a ground leasecontract conveying to the leaseholder the right to occupy and use theland for a specified period of time, and an embedded call, whichprovides the leaseholder/issuer with an option to repurchase the landunderlying the leasehold estate. The rights to occupy and use may berestricted by the contract so as to restrain acts that may harm thevalue of the land. Since the land sale proceeds may be received by theleaseholder in exchange for the land title, the proceeds are not debtand the exchange may not impact the leaseholder's credit score. Theleaseholder may sell its leasehold estate at any time prior to theexpiration of the embedded call and contract provisions may allow theleasehold estate buyer to assume all registered land asset provisionsfor its remaining term.

Originators may advise with respect to legally allowable land uses thatare consistent with those the leaseholder/issuer hopes to have.Originators may also advise with respect to the duration of the embeddedcall, such that the duration is sufficient for the leaseholder toimplement a land use plan that will gain it the financial strength itneeds to exercise the embedded call. Originators may take measures toensure that the leaseholder understands and signs all requireddisclosure forms to demonstrate for the record that the leaseholder isan informed and willing consumer.

In the example of FIG. 2, the landowner or prospective landowner of realestate initiates a registered land asset contract to sell the land andremain the registered owner of the leasehold estate. Registered landasset contract land sale proceeds, in excess of those funds (ifapplicable) to clear the land title, flow to the leasehold estate.

The Leasehold Mortgage

A registered land asset may serve to increase effective buying power,particularly if prospective leaseholder lacks the necessary capital,income or both to qualify under conventional mortgage lending terms. Insuch a case, the absence of land as a part of a mortgage collateralpackage may be offset by the economic values the registered land assetcontract provides the lender through assumable contract provisions. Theground lease, which may offer a free ground rent for a defined term, theembedded call value and related redemption rights, and land saleproceeds paid upon acquisition, and certain mortgagee rights exercisablein the event of a mortgage foreclosure all contribute to leaseholdmortgage security. These provisions offer economic values and may serveto minimize traditional leasehold mortgage lending risks. The registeredland asset land sale proceeds and contract terms, when valued and addedto leasehold estate values (proposed or existing) may enable a qualifiedleaseholder to offer an optional leasehold mortgage of adequate size tosatisfy the purchase and sale agreement or personal financial goals.

A Purchase Partner Leasehold Mortgage (“PPLM”) is a model leaseholdmortgage designed in accordance with the present invention. PPLMdocumentation (including its terms and conditions) may be consistentwith secondary mortgage market underwriting standards. Further, the PPLMterms and conditions may be combined with the terms of the registeredland asset contract and its components. The borrower's personal creditquality and income quantity may be the principal loan repaymentsecurity. The leasehold estate might be the sole PPLM collateral.

The registered land asset contract terms may provide for thedistribution of land sale proceeds through a mortgage lender. Registeredland asset contract terms may authorize the delivery of land saleproceeds, whenever possible, to reduce mortgage debt service either byreducing the mortgage total, by guaranteeing a specific periodic debtservice to the lender or some combination of both. Alternatively, theland sale proceeds may be paid directly to the leaseholder if themortgage lender agrees to accept certain credit risks or if no mortgageis given during the registered land asset origination.

Leasehold Mortgage Default Settlement Price

Should a leasehold mortgage contract go into default such that a lendermust foreclose to realize on its leasehold estate collateral, mortgagelenders may be provided with concessionary contract terms for landpricing and acquisition up to the final embedded call maturity date. Themortgagee, upon notice to the indenture trustee of a leaseholdforeclosure, may assume and exercise the leaseholder's embedded call topurchase the underlying land title from the holder for a priceformulated, for example, as of the date of title transfer to themortgagee. Typically, a mortgagee foreclosure could serve to terminateall registered land asset contract obligations due the leasehold estate.Upon notice of a leasehold foreclosure action, all registered land assetcontract distributions could be held in escrow pending legal settlement.

Should the mortgagee believe a fee simple title might sell faster than aleasehold title, the mortgagee might combine the leasehold estate andthe leased fee estate into a fee simple estate. The mortgagee may knowthe default settlement formula in advance, making it possible for themortgagee to market the property as a leasehold estate or as a feesimple estate without first exercising the embedded call.

The ability to market the combined property rights prior to exercise ofthe embedded call (and subsequent transfer of the land title) isreferred to herein as an “early retirement call.” Such an earlyretirement call saves a mortgagee time and money. However, the landtransfer price continues to grow until the lender exercises the call. Anearly retirement call settlement analysis compares the outcome of twoformulas. The formulas are calculated and the larger of the two outcomesis used as the early retirement call settlement price.

The formulas are as follows:

Formula 1 adds three elements:

Element 1: Accounts for the land sale proceeds plus accumulated interestat the cost of funds rate compounded up to the time of early retirementcall. The formula for Element 1 is:Element 1=LP×(1+i)n

Where:

LP=Land Sale Proceeds

i=The effective investor cost of funds interest rate;

n=Effective number of periods in the early retirement call term, aquotient found by multiplying the periods of the embedded call term (upto the time of default) by the number of compounding periods (typicallymonthly);

Element 2: Accounts for any principal balance outstanding if theregistered land asset is an income asset. Alternatively, if theregistered land asset is a zero coupon asset paying guaranteed periodicpayments, Element 2 sums all periodic payments paid to date plusinterest accrued at the cost of funds rate compounded for the durationof the embedded call term up to the time of the early retirement call.

If the registered land asset is an income asset that is subject to anearly retirement call, one method to determine the outstanding incomeasset balance is as follows:Additional Principal−(Additional Principal×Percent Paid Off)

The formula to determine the outstanding income asset balance is:((VL×1/(1+i)n)−(LV×(1/(1+i)n)))−(((VL×1/(1+i)n)−(LV×(1/(1+i)n)))×((i/(1−(1/((1+i)n1)))/i)−1)×((1+i)n2−1))

Where:

VL=Fee simple Land Value

LV=Land Par Value

i=The effective investor cost of funds interest rate;

n=Effective number of periods in embedded call term, a quotient found bymultiplying the duration of the embedded call term by the numbercompounding periods (typically monthly);

n1=Effective number of periods in the embedded call term, a quotientfound by multiplying the duration of the embedded call term by thenumber compounding periods (typically monthly);

n2=Effective number of periods in the early retirement call term, aquotient found by multiplying the duration of the embedded call term (upto the time of default) by the number of compounding periods (typicallymonthly).

Alternatively, if the registered land asset is a zero coupon asset, amethod to determine the total present value of installments paid up tothe early retirement call is as follows:

Periodic Installment×Factor 2 (Future Worth of One-Dollar Per PeriodWith Interest—see the summary of factors in Appendix B).

To determine the pay off balance of a zero coupon asset, periodicinstallments must first be established. The periodic installments arethen multiplied by a factor representing the future worth of theinstallments with interest. The product is an amount to which the paidup installments would have grown over the given number of installmentperiods, including the accumulation of interest at the effective cost offunds rate per period, up to the early retirement call.

The formula to determine the present worth of the periodic installmentsis:(LV−(Lump Sum Payment×(1+in)))×(i((1+i)n−1))×((1+i)n−1)/i)

Where:

LV=Land Par Value;

i=The effective investor cost of funds interest rate;

Lump Sum Payment=Any Land Sale Proceeds (LP) paid at title conveyance;

n=Effective number of periods in the early retirement call term, aquotient found by multiplying the duration of the embedded call term (upto the time of default) by the number of compounding periods (typicallymonthly).

Element 3: Accounts for any land value appreciation due the holder underthe registered land asset contract, which accumulates over the durationup to the early retirement call.

The land value appreciation portion due may be determined as follows:(Land Market Value(VL)×Factor 1 (Future Worth of One Dollar withInterest)−Land Market Value(VL))

One formula to determine the land value appreciation portion due theholder is:((VL×(1+RA)n)−VL)

Where:

VL=Appraised Land Value;

RA=Effective contract Land Value Appreciation Rate;

n=Effective number of periods in the early retirement call term, aquotient found by multiplying the duration of the embedded call term (upto the time of default) by the number of compounding periods (typicallymonthly).

(1+RA)n=Factor 1 (the future worth of one dollar with interest). The feesimple land value is multiplied by Factor 1 representing the land valuegrowth over the embedded call term at the effective contract land valueappreciation rate (RA) per period.

Formula 2:

Formula 2 is the product of the appraised land value multiplied byFactor 1 (see above and Appendix B) representing the effective contractland value appreciation rate compounded for the contract maturity, andthat product is multiplied by the ratio of the early retirement callterm over the term to maturity. The result is the appreciated landvalue.

The land value appreciation portion due may be determined as follows:(Appraised Land Value(VL)×Factor 1 (see above)×(Defaultduration/Contract duration))

The second formula is:(VL×(1+RA)n)×(n2/n1)

Where:

VL=Appraised Land Value;

RA=Effective contract Land-Value Appreciation Rate;

n1=Effective number of periods in embedded call term, a quotient foundby multiplying the duration of the embedded call term by the number ofcompounding periods;

n2=Effective number of periods in the early retirement call term, aquotient found by multiplying the duration of the embedded call term (upto the time of default) by the number of compounding periods (typicallymonthly);(1+RA)n=Factor 1 (see Appendix B for a summary of factors).

The second formula multiplies the fee simple land value by Factor 1representing the land value growth over the embedded call term at theeffective contract land-value appreciation rate (RA) per period.

The results of Formula 1 and Formula 2 may be compared to determine thegreater of the two. The larger value represents the proportional returnof and return on capital due the holder up to the early retirement call.

Land Sale Distribution Options

FIG. 3 is a block diagram illustrating land sale distribution options inaccordance with a further embodiment of the invention. One role of aregistered land asset contract originator may be to guide theprospective leaseholder as the prospective leaseholder 301 selectsground lease contract options. The originator may also advise theprospective leaseholder how to best distribute land sale funds to suitthe leaseholder's financial objectives. As noted above, if a mortgageloan is a part of that strategy, any distribution plan that optimizesleaseholder opportunity for economic success may have a positiveinfluence on mortgage collateral quality.

Registered land asset contract options may authorize the originator todirect land sale proceeds to pay periodic leasehold mortgage debt (suchas payments of principal and interest) or to pay down any leaseholdmortgage balance. All principal accumulation from mortgage payments mayflow to the leasehold estate (mortgagor).

Land sale proceeds distribution options may meet a broad range of cashflow needs, whether the prospective leaseholder is a new buyer seekingtemporary help acquiring a property, a fee simple owner withdrawingequity without debt, a mortgagor seeking to reduce mortgage interest orrelated periodic costs, or an elderly person converting land value intocash flow without reverse mortgage costs and debt. For example, undercertain circumstances registered land assets provide property owners amechanism to “put” debt to the capital markets. Homeowners, for example,currently have two mechanisms to restructure mortgage debt, refinance orsell. An originator structures existing or new mortgage financing byexchanging the land title for cash used to minimize mortgage debt.Registered land asset proceeds together with a new, smaller purchasepartner leasehold mortgage combine with necessary issuer cash and assetsto establish or restructure leaseholder occupancy costs for a prescribedterm. The leaseholder retains a land “call”.

Land sale proceeds may be distributed in a variety of ways, severalexamples of which are as follows:

Zero Coupon Asset—Option One 302

Cash/Lump Sum Payment: This option delivers a lump sum payment to theleaseholder or leasehold estate at the closing of the registered landasset purchase equal to the present worth of the land par value,discounted over the embedded call term, at an effective cost of fundsinterest rate determined at registered land asset contract origination.

No ground rent payments are due to holder for the embedded call term.Land Sale Proceeds=LV×(1/(1+i)n)Or, alternatively=LV/(1+i)n

Where:

LV=Land Par Value;

n=the effective number of periods in the embedded call term, a quotientfound by multiplying the embedded call term by the number compoundingperiods (typically monthly);

i=the effective cost of funds rate, a quotient found by dividing theannual cost of funds rate by the number of compounding periods.

Zero Coupon Asset—Option Two 303

Guaranteed Annuity Payments: Option 2 pays a series of level periodicinstallments based upon the calculated present worth of the land parvalue, discounted over the embedded call term, at an effective cost offunds interest rate determined at contract origination. Payments aremade to the leaseholder or leasehold estate, which may be assigned to amortgage lender for the duration of the embedded call term. No groundrent payments are due for the embedded call term.Periodic Installments=(LV×(1/(1+i)n))/(1−(1/(1+i)n))/i

Where:

LV=Land Par Value

n=the effective number of periods in the embedded call term, a quotientfound by multiplying the embedded call term by the number compoundingperiods (typically monthly);

i=the effective cost of funds rate, a quotient found by dividing theannual cost of funds rate by the number of compounding periods.

Zero Coupon Asset—Option Three 304

Cash/Lump Sum Payment with Guaranteed Annuity Payments:

Option 3 pays both a lump sum payment and a series of level periodicinstallments that together are equal to the present worth of the landpar value, discounted over the embedded call term, at an effective costof funds interest rate determined at origination. No ground rentpayments are due during the embedded call term.Land Sale Proceeds(LP)=LV×(1/(1+in)

Where:

n=the effective number of periods in the embedded call term, a quotientfound by multiplying the embedded call term by the number of compoundingperiods (typically monthly);

i=the effective cost of funds rate, a quotient found by dividing theannual cost of funds rate by the number of compounding periods.

LV=Land par value, the land par value equals the appraised market valueless the embedded call value.

After the land sale proceeds are determined, the lump sum payment, whichmay be an amount equal to what the leaseholder needs to supplement itsleasehold purchase cash, is determined. If the leaseholder is simplytaking cash for its land and has not given a mortgage, the leaseholdermay select the lump sum cash amount. In any event, the lump sum cashamount may be deducted from the land sale proceeds total. The balancebecomes the basis for the equal installment distribution for theduration of the embedded call term.

A sinking fund factor may determine the level periodic investment ordeposit required to accumulate one dollar in a given number of periodsincluding the accumulation of interest at the effective rate. With thesingle lump sum payment removed, the remaining balance may be convertedto periodic installments by multiplying the balance by the sinking fundfactor. The following formula may be employed:Periodic Installments=(LV−(Lump Sum Payment×(1+in)))×(i/((1+i)n−1))

Where:

LV=Land Par ValueSinking Fund(Factor 3)=i/((1+i)n−1)

n=the effective number of periods in the embedded call, a quotient foundby multiplying the embedded call term by the number compounding periods(typically monthly);

i=the effective cost of funds rate, a quotient found by dividing theannual cost of funds rate by the number of compounding periods.

Income Asset—Option Four 305

Cash/Lump Sum Payment—Requires Ground Rent Payments: This optiondistributes a lump sum payout to a leaseholder that is greater than thelump sum proceeds of a zero coupon asset of equal terms. A mortgagelender may underwrite this option when the leasehold estate buyer doesnot have sufficient funds to convey the leasehold estate title or to payoff an existing mortgage, and a zero coupon asset does not provide thenecessary funds for these purposes.

The excess principal becomes the basis of the rental payment due andpayable in advance for the duration of the embedded call contract term.The excess principal is fully amortized over the embedded call term,assuming the leaseholder settles the income asset at embedded callmaturity and all rental payments are made. A ground rent guarantee maybe necessary to meet underwriting standards set from time to time by asponsor or other entity to include and investor/holder.

An income asset may be calculated in three steps:

First the maximum allowable distribution is calculated in accordancewith the market land value. The market land value times a reversionfactor, which is the present value of one dollar to be collected at afuture time when discounted over the embedded call term, at an effectivecost of funds interest rate determined at registered land asset contractorigination. Therefore, the maximum cash distribution formula is:Maximum Cash Distribution=VL×(1/(1+i)n)

Where:

VL=Fee simple Land Value;1/(1+i)n=Reversion Factor (Factor 4, see Appendix B).

Second, the same formula is employed to calculate the land sale proceedsequal to zero coupon asset option 1. This yields a lump sum equal to thepresent worth of the par value, discounted over the embedded call term,at an effective cost of funds interest rate determined at registeredland asset contract origination. Therefore, the lump sum cash formulais:Land Sale Proceeds(LP)=LV×(1/(1+i)n)

Where:

LV=Land Par Value;

n=the effective number of periods in the embedded call term, a quotientfound by multiplying the embedded call term by the number of compoundingperiods (typically monthly);

i=the effective cost of funds rate, a quotient found by dividing theannual rate by the number of compounding periods.

Third, the monthly ground rent the leaseholder must pay on funds inexcess of a zero coupon asset with equal terms and of duration isdetermined. The result of the first step is subtracted from the resultof the second step rendering the excess funds distributed.

The excess funds, if divided by an ordinary annuity coefficient, yieldthe present value of a series of future payments of rent due per period.The ordinary annuity coefficient is discounted over the embedded callterm at an effective cost of funds interest rate determined atregistered land asset contract origination. Thus, the third step formulais as follows:Monthly Ground Rent=((VL×1/(1+i)n)−(LV×(1/(1+i)n)))/(1−(1/(1+i)n))/i

Where:

VL=Fee simple Land Value

LV=Land Par Value(1−(1/(1+i)n))/i=Ordinary Annuity Coefficient

n=the effective number of periods in the embedded call term, a quotientfound by multiplying the call term by the number of compounding periods(typically monthly);

i=the effective cost of funds rate, a quotient found by dividing theannual cost of funds rate by the number of compounding periods.

Income Asset—Option Five 306

Land Par Value Requires Ground Rent Payments: This option distributes atland title conveyance the full land par value as a lump sum. Incomeasset option 5 requires a periodic ground rent payment for the durationof the embedded call term. Certain underwriting limits may restrict theuse of this option due to a reliance on leaseholder credit. A groundrent guarantee may be necessary to meet underwriting standards set fromtime to time by a sponsor or other entity to include andinvestor/holder.

The ground rental payment calculation multiplies the land par value bythe cost of funds rate determined at origination.Periodic Ground Rent=LV×(1+i)−1)

Where:

LV=the Land Par Value;

i=the effective cost of funds rate, a quotient found by dividing theannual cost of funds rate by the number of compounding periods.

Property Valuation and Registered Land Asset Pricing

Market price and market value may be different. Market valuation methodsand research can and should distinguish related party transactions fromopen market exchanges. Usually price refers to an amount paid by aparticular purchaser to a particular seller under specific circumstancesand conditions. When measuring and distinguishing market valuetransactions, each transaction should be screened for specialcircumstances and bias before the value conclusion. Since land value maybe a primary underwriting decision variable, a land valuation processusing state of the art, real estate appraisal practices is provided inaccordance with the invention.

Pricing the underlying land is a function of the cost of capital, marketcircumstances at origination, and property rights under consideration toname just a few. The economic theory supporting the system builds uponthe economic principle of balance, which states that there is a sense ofproportion in the four agents of production; these agents are “land”,“capital”, “coordination”, and “labor”.

Appraisers apply sales and income analysis techniques to “improved”properties as a way to separate values attributable to “capital”,“coordination” and “labor”, and then allocate these to the improvements.The remainder, after the costs of capital, coordination and labor havebeen paid, represents the net income to the land. Land, as one of theagents of production, has a logical value relationship to total propertyvalue. The income remainder is equivalent to the land's potential rentalincome. This rental income potential is a prime factor and basis of theappraiser's income approach to determine a current land value. Potentialrental income is an element the method employs in pricing the embeddedcall, that future purchase-option right the issuer either buys in cashor what reduces the land's market value (typical) to a price that asponsor will pay. The latter, the land value reduction option, lowersthe land's market value to set the par value price, or the land'sinvestment value basis.

The method offers an issuer an opportunity to exchange the land at itspar value for capital, and certain assumable contract rights specifyingamong others land use, future purchase rights and economic rents. Theland sale proceeds, when added to the issuer's capital position,strengthen the “capital” agent of production. This leaves the issuerspecified land use rights in addition to an enhanced capital position,with time and opportunity to apply coordination and labor as a means togrow wealth. The embedded call retains for the issuer the right torealize on that wealth creation at a specific price and future time.

FIG. 4 is a block diagram illustrating a method for determining valuesand prices associated with a registered asset. In accordance with thisembodiment, a land valuation report 501 may be used to determineunderlying factors for valuing a registered land asset and appropriateland use contract terms 502. The land valuation report reflectsattributes and deficiencies of the associated land, such as location,orientation to sun or water, noise levels, vibration factors, odors,wind exposures, flood zones and other attributes and deficienciesobserved during a site review. Subsequent appraisals within thecommunity have the benefit of preceding appraisal data, gathered, forexample, via a computer network, to determine value.

The land valuation report 501 may be produced via a land value appraisalprocess 503. Under appraisal theory, there are several establishedmethods of deriving land value. These methods are known in the art andinclude, but are not limited to an allocation method 504, a ground rentcapitalization method 505, a direct sales method 506, an abstractionmethod 507, an anticipated use method 508, and a land residual method509. Ad valorem taxation information 510 may also be a consideration inthe appraisal report. A property transaction database 511 may provideinformation relating to transactions involving the property for the landvalue appraisal process 503. Property specific factors 512 influenceland values and is thus considered within the results of the land valueappraisal process in producing the land valuation report 501. Suchproperty specific factors generally result from a site visit (forexample, by the appraiser), but may also be obtained from a databaseassociated with a network as described below.

Land may be affected by external economies and diseconomies.Governmental controls and regulations, economic circumstances, socialforces and environmental conditions all impact land value in differentways. These forces are dynamic and may influence land values in waysthat are as unique as each parcel of land within a community. Inaccordance with the invention, these external influences are measured atcontract origination to produce a land value adjustment factor orcommunity score “cScore” 513. The cScore 513 represents the economicimpacts of community and other location related externalities and it maybe adjusted for time and material impact. Historical communityinformation accumulated in the property transaction database 511 overtime may be used to provide information relating to cScore 513. Absenthistorical data, an interim cScore calculation method, 524 shown below,establishes the initial cScore data. The cScore 513 impacts the land parvalue and other registered land asset contract terms that are dependentupon the land par value.

Further, each registered land asset contract, in turn, influences thecScore 513. As registered assets begin to proliferate in and around acommunity and populate the property transaction database 511,site-specific uses allowed under registered land asset contracts becomean informational resource. Ground lease terms from historical contractreferences that may be used to establish appropriate land uselimitations for new contracts and to ensure the uses will remain inharmony with the location and in tune with the costs of communityservices. Over time, information derived from registered land assetcontracts help measure the economic health and life cycle of acommunity, which in turn influences the cScore calculation and landvalues.

A location characteristics database 514, which may be combined with orincluded in the property transaction database 511, includessocioeconomic information that may be cumulative, eventually influencingthe cScore 513 calculations. The location characteristic database 514includes private and public information that may be fed from multipleinternational, national, state, regional and site-specific sources. Thelocation characteristic database 514 includes information taken from raweconomic data, social data, environmental data and governmental data,which are readily available. Further, data collected on a transactionalbasis may be included in the location characteristics database. Thesemay include, but are not limited to:

1) Regional, national and international factors 515: Federal governmentdata is available by states and by region. It is generally uniform,reliable, timely and cost effective public data. Sub-marketsegmentation, buyer characteristics, pertinent demand factors andpertinent supply factors are available in government data.

2) State factors 516: State economic influences significantly impactland values. Building on federal level data, many states produce a widearray of information available for this purpose.

3) County—SMA Factors 517: Local developments, jobs, and population datainfluence demand. Regional trend analysis, for example, can contributeuseful insight and help anticipate change.

4) Community Factors 518: Social, economic, governmental, andenvironmental factors influence property values in the vicinity of thetargeted property, and as a result the subject property itself. Thesefactors, if any, may be gathered (for example, by an appraiser).

5) Site Specific Factors 519: Physical characteristics, legalinfluences, social influences and the physical and functionalobsolescence of the improvements, if any, may be gathered (again,perhaps by an appraiser).

The location characteristics database 514 may also contain public realestate transactional data including liens, foreclosures and otheractivity useful in analyzing current and future risks and other marketexpectations.

Any developable land parcel within a community may support some sitespecific, appropriate land use sufficient to sustain some theoreticalminimum net operating income (“NOI”). An appraisal may provide anestimated market NOI for, typically, the highest and best use on thesubject land. This minimum NOI is used to calculate the return that theland must produce to justify purchase money funds. Following a titleconveyance, the resulting cScore and NOI may integrate with all otherunderwriting information associated with any RAI on file within theproperty transaction database 511.

The market land value is the basis of the land par value 520, and fromthe land par value the land sale proceeds 521 is calculated. Tocalculate these, the theoretical NOI is adjusted in accordance with thecScore and in accordance with a formula representing the future worth ofthis income stream over the embedded call term. The result equals theembedded call value 522, which is subtracted from the market land valueto yield the land par value. The land par value 520 is the total of allfuture land sale funds that flow to the prospective leaseholder over theembedded call term. The present value of the land par value, discountedat the cost of funds rate for the embedded call term, will yield theland sale proceeds 521.

The embedded call settlement price 523 is the cost to discharge aregistered land asset contract. The settlement date and price aregenerally set at registered land asset contract origination. Theprincipal variables used to determine the embedded call settlement priceare duration term and anticipated land value change. The embedded callvalue 522, the land par value 520, the land sale proceeds 521 and theembedded call settlement price 523, as well as the land valuation report501, are used to determine the registered land asset contract terms 502.

Interim Pricing Method

FIG. 9 is a flow chart illustrating an interim pricing method inaccordance with another embodiment of the invention. See Appendix A fora summary of abbreviations.

By employing the interim pricing method, reliable and usefultransactional information may be accumulated by community for eachregistered land asset land title underwritten. The interim pricingmethod calculates pertinent pricing and values that make registeredassets suitable for trade as a commodity within capital markets, whileretaining the economic characteristics sought by real estate marketinvestors. The interim pricing mechanism may be embodied within acomputer program product, such as computer software or hardware.

The goal of the interim pricing method is two fold, (i) structure theland sale economics so the leaseholder gains economic advantage whileholding favorable land use rights, and rights to acquire the underlyingland at a future time and at a price that is likely to remain within itseconomic reach, and (ii) convey to the holder/investor a low risk, debtfree capital asset that earns a competitive return on investment inexchange for the use of its capital for the duration of the embeddedcall.

The method generates a community score (cScore) for each registered landasset it prices. A cScore varies by community and by contract duration.Pertinent cScore factors may be recorded in a database in accordancewith each community wherein registered assets are underwritten. Each setof cScore factors accumulate in the database to become the basis for theinterim pricing mechanism to account for the economies and diseconomiesvarious community externalities impose on a locus. The cScore reflectsthese impacts when it values and prices the embedded call (Lc). A cScorefactor should also influence the resulting land par value (LV)calculation and the several dependant economic values that the interimpricing mechanism will calculate for any given parcel of land, withinany community subject to a registered land asset contract.

The interim pricing mechanism can price and value registered land assetelements within any community for any investment duration absenthistorical market transaction information. Over time and with theaccumulation of adequate transactional information by community, avariable attribute econometric pricing model will supplement the interimpricing method. The cScore and registered land asset pricing may then bederived through regression analysis of historical transactional data,initially generated by the interim pricing method.

Appendix C is an illustration which shows a sample embodiment of a userinterface as well as Microsoft Excel cell references corresponding tothe column and row coordinates found in the sample embodiment.

Computational Constraints, Objective Functions and Decision Variables

The objective function, decision variables and computational constraintsare set 1001 and the objective function, decision variables andcomputational constraints determine the output of the pricing mechanism.A sponsor or an underwriter may set acceptable objective functions,decision variables and computational constraints prior to registeredland asset origination.

Computational Constraints

Computational constraints employ a plurality of mathematical limits.Below are three examples:

Constraint #1:=(IM2/f)<=LP (Cell G37) 1017;

Constraint #2:=(IT/LV)−I=−0.000001 (Cell G38) 1018;

Constraint #3:=IM1>=(IM2−0.000001) (Cell G39) 1019.

Computational constraints set bounds on decision variables. An exampleof a physical boundary is “>=(result −0.000001)” where a specificdecision variable sets the limit of an acceptable answer.

These following elements have computational results that may change whendecision variables change due to computational constraints.

IM1=Minimum Ground Rent 1 (Cell E35)

IM2=Minimum Ground Rent 2 (Cell E36)

LC=Embedded Call (Cell E39)

LV=Land Par Value (Cell E40)

LP=Land Sales Proceeds (Cell E41)

Ls=Embedded call settlement price (Cell E42)

IT=Terminal Rent (Cell F28)

Computational constraint #1 (Cell G37) 1017 is (IM2/f)<=LP; itdetermines if the quotient of minimum ground rent 2 (IM2) divided by thedebt constant (f) is equal to or greater than the land sale proceeds(LP).

Computational constraint #1 requires the method to repeatedly calculatethe embedded call (Cell E39) 522, the land par value (Cell E40) 520 andthe land sale proceeds (LP) 521 as a function of each trial minimumground rent 2 (IM2) 1014.

Computational constraint #2 (Cell G38) 1018 is (IT/LV)−I=−0.000001; itcompares the terminal rent 1023 yield on investment (IT/LV) less theannual cost of funds (I) 1006, to ensure that the terminal rent (IT)delivers the expected yield on the land par value (LV) 520 within thelimit of I−0.000001.

The trial terminal rent (IT) 1023 is divided by the land par value (LV)520. The land par value equals the future worth of the land salesproceeds (LP) 521 distributed at origination; therefore the quotient of(IT/LV) represents the return on invested capital at the end of theembedded call term 1012.

Computational constraint #3 (Cell G39) 1019 is IM1>=(IM2−0.000001); itcompares the trial “minimum ground rent 1” (IM1) 1013 to the “minimumground rent 2” (IM2) 1014 to determine if the trial “minimum ground rent1” is greater than or equal to “minimum ground rent 2”−0.000001.

Objective Functions

Setting an objective function 1001 defines the solution sought. Forexample, one objective function may be to find the minimum mortgageequivalency for minimum ground rent 2 within the limits of thecomputational constraints. In this example, control 1 1020 tests whetherthe objective set in 1001 is achieved. Determining the minimum mortgageequivalency relies on the system's ability to change the decisionvariables (collectively in 1022). The computational constraints 1017,1018, and 1019 manage the values of the decision variables by settingbounds to acceptable results.

Control 1:=MIN(Mortgage Equivalent) (Cell G34)

The objective is to find the absolute “minimum” mortgage equivalency(ME) (Cell E38) 1021 possible within the limits of the computationalconstraints by changing the decision variables.

Decision Variables

The illustration lists the market ground rent (IL) (Cell G16) 1003 andthe cScore (Cell G18) 1010 as the decision variables. As mentionedabove, changing these variables change the dependant results within thebounds set by the computational constraints.

Decision Variables=COUNT(IL, cScore) (Cell G35)

The pricing mechanism employs computational constraints 1017, 1018 and1019 to set limits, maximize or minimize or otherwise adjust decisionvariables to achieve the “optimal solution”. A “globally optimalsolution” is one where there are no other feasible solutions with betterobjective function results. This differs from a “locally optimalsolution” where there are no feasible solutions within the range of theobjective function values and a “best fit” solution returns. In someinstances more than one solution is possible so the method returns thebest of the “locally optimal solution” options.

Gathering Minimum Marketplace Information

The interim pricing mechanism employs comparable and consistent propertyspecific and marketplace information to accurately value and priceregistered land asset elements.

Property specific information relating to the subject land parcel isnecessary and may come from an independent and supportable real propertyappraisal report, or from comparable transactions. The appraisal reportshould support conclusions for at least two of the three market researchresults listed below:

“Market Ground Rent” as a net operating income (IL) 1003;

“Land Capitalization Rate” (RL) 1004; and

“Fee simple Land Value” (VL) 1005.

In addition, at least three local market-underwriting factors that arerelevant as of the time of the transaction 1011 are considered. Thesethree factors come from contractual requirements between the sponsorrepresenting capital investors and the originator, who must enter thefactors into the pricing mechanism. The factors are:

Investor “cost of funds rate” (I) 1006 as of the underwriting date;

the cost of funds rate is determined for a period equal in duration toany embedded call term 1012;

actual or prevailing leasehold mortgage terms 1007 needed to develop adebt constant (f) as of the underwriting date 1011; and

the contract “land value appreciation rate” (RA) 1008 for the embeddedcall term 1012.

Validating Appraisal and Market Evidence

A market land value appraisal report 501 is a research study ofhistorical marketplace activity. The appraisal report is the analysis ofthat marketplace activity and its impact on the resulting property valuereconciliation. An underwriter reviews appraisals and other contributingproperty related reports to validate reconciliation rational andconclusions. These techniques draw from known or previously reportedmarketplace data 511 and 514 filtered for informational quality andmateriality. In accordance with the pricing mechanism, these techniquestogether with historical data should validate or supplement appraisalresults 1009 if reported information is sparse or deemed unreliable byan underwriter. As the ability to capture transactional informationbroadens, and reliable data accumulates, application methods andformulations will expand as will the scope of data and data combinationsby various designated geographical boundaries. These formulas andtechniques are an integral part of the appraisal review process,specifically to confirm the usefulness of a market ground rent (NOI)(IL) 1003, a land capitalization rate (RL) (1004) and/or a fee simpleland value (VL) 1005 appraisal conclusion.

Market Ground Rent

Market ground rent/NOI (IL) 1003 is the rental income expectation (netof land expenses) for the right to use or occupy the subject landparcel(s). The appraiser must demonstrate adjustments for market forcesand other conditions that make comparable and competing rents consistentto the subject land before conclusions are taken as a reliabledeterminant of obtainable market ground rents, rents the subject parcelmight draw as of the valuation date.

After adjusting market ground rents for land expenses paid by aleaseholder, the resulting market rent or net operating income (NOI)1003 is the income to the land available as a return on capitalinvestment. Principal return, or return of investment, is in theembedded call settlement price (LS) 523 paid on the final anniversary ofthe purchase option term 1012.

The pricing mechanism uses the NOI (IL) to set the upper limit ofmarketplace income potential to the land. Absent reliable and timelymarket land rental data, one technique to approximate market ground rent1003 is to multiply the fee simple land value (VL) 1005 by anappropriate land capitalization rate (RL) 1004.

Where: net operating income (NOI)IL=VL×RL

Land Capitalization Rate

The land capitalization rate (RL) 1004 is a market-derived factoradjusted to local market conditions as of the time of use; it reflectsanticipated marketplace returns of and on a property investment adjustedfor economic variables influencing its local marketplace and prescribedunderwriting data. The appraiser may use a basic capitalization rate oran expanded capitalization rate to mathematically solve for the land'smarket value given reliable income data. Typically, the appraiser relieson time sensitive and verifiable local market sale prices and rents toderive competing basic capitalization rates. Given reliable land valuesand market rents, the appraiser can extract the indicated capitalizationrate for a number of competing real estate transactions as of thevaluation date 1011.

To estimate a land capitalization rate 1004 for a given property divideits market ground rent (IL) 1003 by its fee simple land value (VL) 1005.

Where:RL=IL/VL.

Fee Simple Land Value

The appraisal report 501 must indicate the process the appraiseremployed to determine the fee simple land value (VL) 1005. A fee simpleland value is the absolute upper limit the pricing method might indicatean investor pay in land sale proceeds 521 in exchange for a registeredland asset contract 502. Each registered land asset has a targetedinvestment value that is its land par value (LV) 520.

The fee simple land value may also be expressed in the form of a ratio;the fee simple land value divided by the greater of the total appraisedproperty value or contract sales price, resulting in a “land-to-value”ratio.

Absent competing property or property specific transaction data,dividing an appropriate land capitalization rate 1004 into adjustedmarket ground rents 1003 from competing properties should generate anapproximate fee simple land value 1005 for each. The results can befurther evaluated for comparability and consistency.

Where:VL=IL/RL

Assigning a cScore

Assigning a cScore 1010 relating to a property underlying a registeredland asset includes calculating a cScore factor derived from valuingeconomies and diseconomies brought about by externalities impacting thelocus. In the absence of sufficient community data, the interim pricingmethod automatically approximates the cScore given certain materialinputs.

The cScore factor should vary for each embedded call term N 1012 that anoriginator might offer within a specific community. The cScore algorithmenables registered land asset pricing in the absence of historicaltransactional data. An initial cScore factor typically a knownapproximation is assigned which is always expressed as a positive valuethat is a percentage of one.

The cScore factor 1010 and the market rent IL 1003 are the two primarydecision variables the method relies upon for its conclusions. Thepricing method self-adjusts these primary decision variables to solvefor the objective function 1020. In the process of calculating a cScoretrial result, each change to the cScore varies the resulting value ofany dependant calculation that relies on the market rent IL 1003 value.The pricing mechanism will automatically adjust the cScore and themarket ground rent values within the bounds of the computationalconstraints 1017, 1018, and 1019 until the method converges on the mostfavorable objective function 1020 result, the minimum mortgageequivalency 1021.

Minimum Ground Rents

A community market ground rent (NOI) (IL) (Cell G16) 1003 is a dynamicvalue; it changes as market conditions change over time. In accordancewith the pricing mechanism, an initial market ground rent value isassigned as of the origination date that is greater than zero dollars.

The market ground rent source may be an independent land value appraisal501 by a licensed real property appraiser as of the origination date1011, or an underwriter may justify a market rent from transactionreview data. The pricing mechanism should calculate and thenautomatically adjust the initial market ground rent (NOI) entry andcScore entry until the method concludes on a dollar amount necessary tosupport the resulting land par value (LV) 520 and other value and priceconclusions, given marketplace variables 1006, 1007 and 1008.

The pricing mechanism employs two competing functions to establish itsfinal minimum ground rent conclusion referred to herein as “minimumground rent 2”. As stated above, the method calculates then compares theresults of two competing functions, repeating the calculation andcomparison process by repeatedly inserting trial values for the cScore1010 and market ground rent 1003 (collectively in 1022) until theoperational constraints governing the process are met. The resultingperiodic installment (typically monthly) represents the theoreticalminimum rent land within this community may likely generate irrespectiveof appraisal conclusions.

The final “minimum ground rent 2” candidate is the lowest possible netoperating income the land must be capable of producing, which the methodconcludes has sufficient capacity to meet the invention's underwritingcriteria as of the specific underwriting date 1011.

Minimum Ground Rent 1

The minimum ground rent 1 (IM1) 1013 function calculates a monthlyinstallment derived from the remaining land value after the cScoreadjustment. This becomes the value of a theoretical minimum ground rentthat the land should generate and may be the basis of comparison in the“minimum ground rent 2” (IM2) 1014 calculation below.

The cScore value (Cell G18) 1010 should automatically calculate andadjust the resulting “minimum ground rent 1” until the purpose given tothe objective function 1001 is met and consistent with the computationalconstraints 1017, 1018 and 1019.

The formula is: the appraised fee simple land value (VL) 1005, less theproduct of the land value 1005 times the cScore 1010 which results in anumerator that is further divided by the product of the future worth of$1 per period with Interest (factor 2) times its base factor. Thedenominator represents the future worth of one dollar per period withinterest, paid in advance, at the cost of funds (CoFIN) discount rate1006.

The minimum ground rent 1 (IM1) formula is:IM1=(VL−(VL×cScore))/((1+i)×((1+i)n−1)/i))

Where:

VL=fee simple land value;

cScore=A dynamic value as a percentage of 1 that is greater than 0;

i=The effective cost of funds interest rate;

n=effective embedded call term (N×NC).

Minimum Ground Rent 2

The minimum ground rent 2 (IM2) function 1014 evaluates the greater of aminimum ground rent 1 1013 or a monthly market ground rent 1003 afteradjustment for being paid in advance (the product of the initial marketground rent (IL) times the base factor for the CoFIN rate 1006). Ifminimum ground rent 1 is greater than or equal to the monthly marketground rent paid in advance then the method uses minimum ground rent 11013, otherwise, it calculates then carries forward the market rent paidin advance to computational constraint #3 1019 for further evaluation.

Should the final minimum ground rent 2 (IM2) 1014 be greater than themarket ground rent (IL) 1003 specified in the appraisal report (or amarket ground defined by an underwriter) the mechanism will notify 1016the user of this result. This circumstance may be an underwritingconcern.

The formula is:IM2=If (IM1>=((IL/NC)×(1+i)), IM1, else: ((IL/NC)×(1+i))

Where:

IL=market ground rent;

NC=compounding periods;

i=the effective cost of funds interest rate

IM1=minimum ground rent 1.

The mechanism should test the minimum ground rent 2 comparison resultsemploying computational constraint #3 1019. Computational constraint #3is set prior to calculation to establish the relationship between thetwo monthly rents, minimum ground rent 1 1013 and minimum ground rent 21014. For example, the setting below is for illustrating this.

The setting for computational constraint #3 is:IM1>=(IM2−0.000001)

Where:

IM1=minimum ground rent 1;

IM2=minimum ground rent 2.

Computational constraint #3, in this example, ensures minimum groundrent 1 (IM1) (Cell E35) is greater than or equal to the sum of minimumground rent 2 (IM2) (Cell E36) minus 0.000001.

A false conclusion for computational constraint #3 will trigger thepricing mechanism to recalculate the minimum ground rent functions. Afalse answer should cause the pricing mechanism to adjust 1022 thevalues for cScore factor 1010 and/or the market rent (IL) 1003, the twodecision variables, and to recalculate all functions until the terms ofconstraint #3 1019 are met.

Once constraint #3 is true, minimum ground rent 2 becomes the trialminimum ground rent candidate to measure the mortgage equivalency 1021value of the minimum ground rent 2 periodic installments.

Mortgage Equivalency Value

The mortgage equivalency calculation (ME) (Cell E38) 1021 results in aquotient produced by dividing minimum ground rent 2 1014 by the mortgagedebt constant (f) derived (as shown in FIG. 10 as a subroutine by thedotted line between block 1007 and 1021) from actual or prevailingmortgage terms 1007.

Mortgage equivalency is determined in order to measure the substituteeconomic value the minimum ground rent 2 1014 installments represent. Bycomparing what the imputed minimum ground rent 2 1014 installments couldbuy if put into a substitute mortgage loan opportunity calculated at anactual or prevailing mortgage rate and duration, the pricing mechanismillustrates any economic advantage the leaseholder gains by exchangingthe land for cash. Following a test in accordance computationalconstraint #3 1019, minimum rent 2 (1014) should be the numerator in thequotient.

The mortgage debt constant (f) (Cell G32) is factor 6 (see Appendix B).Factor 6 is a mathematical representation of an “ordinary annuity” thathas a present value of one dollar as a level periodic installment, whichwill pay interest and provide full amortization or recapture of aninvestment of one dollar at the actual or prevailing mortgage terms 1007quoted at origination. The mortgage debt-constant and the cost of funds(CoFIN) rate (Cell E29) 1006 should share the same “marked-to-market”date.

The formula to determine a mortgage equivalency value is:Mortgage equivalency value=IM2/f

Where:

IM2=minimum ground rent 2 (Cell E36)

The formula for the mortgage debt constant (Cell G33) is:f=(RM/NC)/(1−(1/(1+(RM/NC))^(NC×NM)))

Where:

RM=annual mortgage interest rate, (of equal date to CoFIN);

NM=mortgage amortization term;

NC=installments per year.

By dividing minimum ground rent 2 (IM2) by the mortgage debt constant(f), the result is the total cash proceeds obtainable if the periodicinstallment IM2 1014 were applied as a mortgage installment at market orquoted mortgage terms. The mortgage interest rate and amortization termshould be the prevailing terms as of the date of origination 1011.

The Mortgage Equivalency Test

The mortgage equivalency (computational constraint #1 1017) testdetermines if the mortgage equivalency value 1021 is less than or equalto the land sale proceeds (LP) 521. Land sale proceeds are the fundspaid to the leaseholder at the land title closing and title transfer.

The mortgage equivalency (ME) calculation repeatedly and progressivelyreduces minimum rent 2 (IM2) 1014 within the limits of the computationalconstraints until the lowest possible mortgage equivalency value 1021 isfound.

Minimizing Mortgage Equivalency

As stated above, the goal of the objective function, which will betested in accordance with control 1 (Cell G35) 1020, is to seek theabsolute “minimum” possible mortgage equivalency (ME) value (Cell E38)1021, which falls within the limits of the computational constraints.

The objective function responds to initial decision variable inputs(Cell G36) 1001. In accordance with the pricing method the decisionvariables (IL in Cell 16, and cScore in Cell G18) 1010 and 1003 areadjusted (collectively in 1022) until the computational constraints(Cells G37, G38, G39) 1017, 1018 and 1019 try and test out eachcomputation result until the method narrows the set of possible answersdown to the most feasible result.

The objective function drives the pricing mechanism method to find the“minimum” mortgage equivalency value by recalculating for mortgageequivalency each time computational restraints return values outside ofset limits. A new market ground rent and/or cScore, the decisionvariables, are tried 1022 until the most feasible “minimum” mortgageequivalency value is found.

The pricing mechanism relies on computational constraint #1 (Cell G36)1017 to monitor each mortgage equivalency value 1021, which issubsequently compared to a computational value for land sale proceeds(LP) (Cell E41) 521 to determine if the mortgage equivalency value isless than or equal to the land sale proceeds value. The pricingmechanism calculates the embedded call 522, the land par value 520, andfinally the land sale proceeds value for each trial until computationalconstraint #1 is satisfied. The relationship between the land saleproceeds and computational constraint #1 is illustrated by the dottedline between blocks 521 and 1017 as a subroutine of the pricingmechanism.

The formula for computational constraint #1 is:Computational constraint #1=(IM2/f)<=LP(Cell G37)

The Embedded Call

To determine the land par value (LV) the method must first determine theembedded call (LC) value (Cell E39). The embedded call (LC) value (CellE39) 520 is the product of minimum ground rent 2 (IM2) value (Cell E36)1014 times factor 2 (Cell E33).

Factor 2 (see Appendix B) is the future worth of $1 per period withinterest discounted at the Cost of Funds (CoFIN) terms 1006. Factor 2represents the total accumulation of principal and interest for a seriesof “minimum ground rent 2” installments per period (IM2) 1014 for agiven number of periods (N×NC) (Cell E30×E31) with interest at the CoFINeffective rate per period 1006.

Calculating the Embedded Call

The value assigned to the embedded call (LC) 522 equals the product ofminimum ground rent 2 (IM2) 1014 (Cell E36) multiplied by factor 2,discounted at the CoFIN rate 1006 established at origination (whereCoFIN=I). The resulting product is a lump sum representing the value ofthe embedded call.

Factor 2, the future worth of one-dollar per period with interest, is alevel periodic investment of principal and interest into a series ofdeposits or installments of one dollar per period for a given number ofperiods with interest at an effective rate per period.

Thus, the embedded call formula is:LC=(IM2×((1+i)n−1)/i)

Where:

IM2=“minimum ground rent 2”;

i=the effective investor cost of funds interest rate;

n=effective embedded call term (N×NC);

The Land Par Value

The land par value (LV) (Cell E40) 520 equals the market land value (VL)(Cell G14) 1005 less the embedded call value (LC) (Cell E39) 522.

Computational constraints cause the land par value computation torepeatedly recalculate for each trial monthly minimum ground rent 2value (IM2) (Cell E36) 1014 until computational limits are met.

As previously stated, minimum ground rent 2 must first comply withcomputational constraint #3 1019 before its resulting value becomes thebasis for the embedded call value 522 calculation employed to establisha trial par value.

Similarly, computational constraint #2 1018 evaluates each calculatedland par value (LV) 520 result by dividing terminal rent (IT) (Cell F29)1023 by the land par value to ensure the resulting yield (CoFOUT) isconsistent with the cost of funds rate (CoFIN) 1006 set at origination.If computation constraint #2 is not met, the pricing mechanism adjuststhe decision variables and calculates a new par value.

As illustrated within the sample embodiment of Appendix C, computationalconstraint #2 1018 is satisfied when the formula ((IT/LV)−I=−0.000001)is true. Cell E37 evaluates the result of Cell F29 ((IT/LV) minus CellE29 (CoFIN) 1006 to determine if the sum satisfies a physical restraintof a minus −0.000001. Thus in accordance with computational constraint#2 1018, the quotient of terminal rent (IT) (Cell F28) 1023 divided bythe par value (LV) (Cell E40) 520 less the annualized cost of funds in(CoFIN) rate 1006 determined at origination should not deviate more thana minus −0.000001.

The formula to determine the par value (Cell E40) 520 is:LV=VL−(IM2×((1+i)n−1)/i)

Where:

VL=fee simple land value;

IM2=minimum ground rent 2;

i=the effective investor cost of funds interest rate;

n=effective embedded call term (N×NC);

The Land-Sale Proceeds

The land-sale proceeds 521 are the present value of the land par value(LV) 520. The land sale proceeds are available to the leaseholder atclosing, and the land sale proceeds are the product of multiplying theland par value by factor 4 (again, see Appendix B).

Factor 4 represents the present value of one dollar to be collected at agiven future time, discounted at the effective interest cost of funds(CoFIN) terms 1006 for the embedded call duration 1012, i.e., theeffective number of periods between the origination date 1011 to theembedded call maturity date (N×NC)).

Given a land par value (520) that meets the mathematical limits set bycomputational constraints, the land sale proceeds formula is:LP=LV×1/(1+i)n

Where:

LV=land par-value

i=The effective investor cost of funds interest rate;

n=effective embedded call term (N×NC).

Establishing the Terminal Ground Rent

The terminal ground rent (IT) (Cell F28) 1023 is the contract groundrent the lessee will pay if at embedded call maturity the leaseholderdoes not exercise its rights to acquire the land underlying theleasehold estate.

The terminal ground rent 1023 is the indirect result of minimum groundrent 2 1014 in that minimum ground rent 2 and is a factor in determiningthe embedded call and the land par value. Whereas, the appraised feesimple land value (VL) less the embedded call equals the par value (LV).The quotient found by dividing the terminal rent by the land par valueshould equal the “cost of funds in” rate 1006 where IT/LV=I.

To this end, the market ground rent (IL) is a decision variable is aprimary element in the terminal rent calculation. The objective function1020 causes the pricing mechanism to repeatedly adjust the monthlymarket ground rent (IL) 1003 and the cScore 1010 value (collectively in1022) until computational constraints are met and the terminal rentmeets the limits of computational constraint #2 1018. In accordance withcomputational constraint #2, the quotient found by dividing the terminalrent by the land par value, less the cost of funds rate (CoFIN) shouldequal a −0.000001 (Cell G38) 1018.

The relationship of the terminal rent to computational constraint #2 isshown in FIG. 10 by the dotted line or subroutine between blocks 1023and 1018.

The terminal ground rent 1023 formula (Cell F28) is as follows:IT=(((IL/NC)×(1+RA))×(1+RA)n)×NC

Where:

IL=market ground rent

RA=effective land value appreciation rate;

NC=installments per year;

n=effective embedded call term (N×NC).

Determining The Embedded Call Settlement Price

Determining the embedded call settlement price 523, due at embedded callmaturity, employs the fee simple land value (VL) 1005 and the land valueappreciation rate 1008 determined at or prior to origination. Thepricing mechanism multiplies the fee simple land value by factor 1representing the future worth of one dollar growing over the embeddedcall term at the effective contract land-value appreciation rate (RA)1008 per period.

Thus, determining the embedded call settlement price:LS=VL×(1+RA)n

Where:

VL=fee simple land value

RA=effective contract land-value appreciation rate

n=effective embedded call term (N×NC).

Registered Land Asset Underwriting:

An underwriter, typically an individual or a computational device orboth, gathers, stores, manipulates, reviews and reports on the datapresented by an originator to determine its quality, relevance andreliability for underwriting purposes. An underwriting decision to grantor deny should be in writing and detail the rationale in support of thedecision.

An underwriter ultimately accepts or rejects 1024 the results. Theunderwriter should document the reasons for such acceptance or rejectionand record the data and resulting decision documentation to theappropriate database preserving the data for future underwritingreference. Stored by RAI if accepted, or if rejected, stored RAI (ifknown) and by property street address, or other identifier such as anidentified community by lot, block and local tax map reference.

The Registered Land Asset Contract

FIG. 5 is a block diagram illustrating components of the registered landasset contract. The registered land asset contract represents theagreement between the leaseholder and the indenture trustee as landtitle nominee.

Under the registered land asset contract, the leaseholder should havethe right to operate the land, to maximize the economic potential of theleasehold estate's legal use and enjoy the advantages or profits derivedfrom the underlying land owned by another so long as the property is notdamaged or altered in any way. All costs associated with leaseholdoperation may be born by the leasehold estate to include all expenses(e.g., property taxes, betterment assessments, association dues,insurance, permit fees, impact fees, utilities to include water andsewer costs and assessments, and penalties of any type). Resultingoperational profits and equity gains flow to the leasehold estate. Anydevelopment on the land may become the property of the leasehold estateduring the ground lease term. Improvements revert to the land and holderof record at ground lease termination. The holder then becomes the ownerof the fee simple land title.

The holder of a free asset, following some predefined time period afterexpiration of the embedded call, may set the monthly ground rent due.Optional charges may include provisions for a percentage of leaseholdproduction or other terms appropriate for the land use. Notice ofcontract changes and rental terms should be made to the leaseholder inwriting within a time frame set by local laws or as set forth under theregistered land asset contract or mortgage contract containing rentalescalation provisions in effect. A copy of the notice should be sent tothe mortgagee if applicable, to the issuer trustee responsible for thesubject registered land asset contract, and to the indenture trustee forregistration on the electronic land title registry. All finalizedcontract changes and rental terms should be posted to the electronicland title registry.

The registered land asset contract terms may be senior to mortgage termsand any subsequent holder assignments may be junior to both. A holdershould not be able to disaggregate a registered land asset contractprior to the embedded call expiration, while it remains assumable by amortgagee or a leasehold estate buyer. Following the final embedded callmaturity date, free asset contract rights may be severally assigned uponthe recording of each such derivative facility to the electronic landtitle registry. All derivative rights should terminate and settle whenand if the leaseholder of record purchases land underlying its leaseholdestate.

The registered land asset contract may be assumable. A subsequentleasehold transferee, who might include the mortgage lender, can takeover a leasehold ownership position and benefit from preferentialcontract terms. When a leasehold estate sells, the transferee may assumethe remaining contract life for both the embedded call and the groundlease contract. These transferable rights may provide the new leaseholdestate owner the necessary benchmarks for specific performance and landuse expectations. The residual rights may serve to facilitate futureplanning efforts and be the basis of any future land use coordinationand labor.

Any registered land asset contract may be sold or traded by its holder.Capital markets may buy, sell and trade various registered land assetcontract types. Market makers may establish derivative beneficialinterests such as income tranches or may establish such interests by,for example, selling puts and calls on future land title valuations orregistered land asset yields. Every electronic land title is held inexchangeable form, such as in an electronic book entry, as a deliverableinstrument facilitated by bookkeeping entries to the electronic landtitle registry with such entries accounting for subsequent transfers ofbeneficial interests. Local real estate markets may buy and sell varioustypes of registered assets as income producing investment properties.The electronic land title registry keeps track of ownership andnotification requirements if the holder decides to sell or to assignbeneficial interests.

If a free asset is put up for sale, a notice of sale terms may go to theleaseholder and any registered mortgagee as set forth under contract andthe leaseholder or mortgagee may be given priority over a real estatelisting. A leaseholder or mortgagee making an offer to purchase theregistered land asset underlying its leasehold estate collateral maycommunicate that offer through a servicing agent or an issuer trustee.The indenture trustee or its agent may communicate with the issuertrustee or servicing agent any counter offer or holder decision ofacceptance.

A leaseholder may optionally purchase the free asset contract on theland beneath its leasehold estate via a real estate buyer broker. A realestate agent or broker may list any registered land asset contract. Alisting broker through whom the holder offers the registered land assetmay have to waive compensation if the leaseholder purchases the freeasset, unless a separate contract between the leaseholder and brokerreplaces the leaseholder's right to acquire the underlying land titledirectly from the holder without a broker. A real estate agent listingshould be on file with the electronic land title registry and the issuertrustee responsible for the subject registered land asset contractshould be notified of such a listing.

Registered Land Asset Contract Addendum

A registered land asset contract addendum 601 may be produced for anyland acquisition, irrespective of property type. The addendum may beproduced in accordance with a RESPA model even though the registeredland asset represents a direct purchase of a land title, in cash with nomortgage loan component. RESPA is the “Real Estate Settlement ProceduresAct” administered and monitored by the Department of Housing and UrbanDevelopment (HUD). RESPA covers loans secured with a mortgage placed ona one-to-four family residential property. These include most purchaseloans, assumptions, refinances, property improvement loans, and equitylines of credit. HUD's Office of RESPA and Interstate Land Sales isresponsible for enforcing RESPA.

The registered land asset contract addendum 601 lists all fundtransfers, fees and charges associated with the registered land asset.These are items such as appraisal and professional fees, tax stamps,real estate brokerage fees, lending origination, title research,recording fees and registered land asset origination costs anddistributions. If the property is a one-to-four unit residentialproperty, a HUD approved RESPA statement may also be provided.

The registered land asset contract addendum 601 is produced for eachreal estate title transfer whether or not a leasehold mortgage isoffered by the leaseholder. Transactional transparency prerequisites mayrequire that all registered land asset originators leave an audit trailthat is recordable to appropriate database archives and reproducible inthe event of any future title challenge.

Embedded Call Terms

Embedded call terms 602 are set at origination. Following embedded callexpiration, the registered land asset is a free asset. Its holder maysell a free asset at any time. Further, when the embedded call termexpires a ground rent payment may be due to the holder. Registered landasset contract terms may influence the ground rent price and when groundrent payments begin. For example, ground rent payments may be payable inadvance of the embedded call expiration date and the ground rent pricemay be set for a predetermined time period following the embedded callmaturity date. After the predetermined time period, the rental amountdue may change. Alternatively, the leaseholder may also elect to settlethe embedded call terms by paying the embedded call settlement price atmaturity, which terminates the registered land asset contract.

As another alternative, the leaseholder may also elect to rewrite a newregistered land asset contract following settlement of the precedingcontract. This creates a new embedded call contract with prevailingfinancial terms as of its origination date. Rolling the registered landasset contract over may provide the leaseholder with any excess landvalue appreciation greater than the contract redemption price. Such anembedded call rollover feature may reduce mortgage loan risks. Both theright to assume the registered land asset contract and the right toreissue a registered land asset contract following the expiration of theembedded call term provide a lender with opportunities to managecollateral risk. In the event the leaseholder causes a ground leasedefault under its leasehold mortgage financing, registered land assetcontract features afford a lender opportunity to protect and realizeupon its collateral (the leasehold estate with embedded call and groundlease rights). If a default is due to a breach of lease terms other thanfinancial terms, such as misuse or abuse of the land, the mortgagecontract may also be in default, leaving the leaseholder to suffer theremedies prescribed within the mortgage contract if not cured underregistered land asset contract terms.

If the market value at the embedded call expiration date is less thanthe redemption price, the leaseholder may elect not to exercise theembedded call, opting rather to pay a ground rent established atorigination, and to bid on the land under free market conditions. Afterexpiration of the embedded call, the leaseholder may have the right toremain on the land as a tenant. Such rights may also be assumable.

The leaseholder may optionally purchase (typically at origination)certain registered land asset contract features that may offer theleaseholder specific rights in the future. One example, the leaseholdermay purchase a first right of refusal with respect to the sale of a freeasset. This first right of refusal option would provide the leaseholderwith notice of a holder's intent to sell the land title to any openmarket participant, and may also provide the leaseholder with landvaluation methods, which may become the basis of price negotiation priorto open market competition. Another example may be an optional landvalue appreciation contract. This option insures the leaseholder fromland value depreciation, due to market or other circumstances, thatdrive the land's market value below the embedded call settlement priceat call maturity.

As discussed above, a mortgage lender holding a leasehold estate lienmay have a contractual right to exercise the embedded call if theleaseholder cannot or does not. The mortgagee may have the right tosettle the original registered land asset contract to protect itsmortgage collateral and then cause the leaseholder to issue a newregistered asset. Such action provides the leaseholder time to manageits finances before the next expected maturity date and may limitmortgagee collateral risk.

For example, a mortgagee may hold an adjustable rate mortgage set toroll over on the embedded call maturity date. Combined with the right tore-write and settle an embedded call on behalf of the leaseholder, themortgagee can roll over the mortgage and add any registered land assetsettlement costs or gains to either a new fee simple mortgage or a newleasehold mortgage and registered land asset contract. In either event,if the land call is “in the money” the mortgage loan-to-value ratioshould reflect the increased equity captured at embedded callexpiration.

If the land value on the final maturity date is greater than theembedded call price, a newly issued registered land asset contractgenerating proceeds in excess of registered land asset settlement costsmay flow to the leaseholder. If the land value at the time is less thanthe embedded call price, any additional capital costs plus registeredland asset contract settlement costs may increase the outstandingleasehold mortgage balance if not paid in cash.

A mortgage lender that opts not to settle and/or renew a maturingregistered land asset contract puts its mortgage collateral at risk ifthe leaseholder fails to meet its contract obligations. For example, afailure to service the lease terms would result in default. A defaultmay result in the indenture trustee taking possession of the leaseholdestate, which should clear any lien the mortgage lender may have on theleasehold estate.

The embedded call settlement price does not change if the leaseholdestate is sold before the embedded call maturity date. If a mortgageexists, the embedded call rights flow to the mortgage lender underforeclosure who may transfer these rights to the next leasehold estatebuyer or, alternatively, purchase the land on the preferential costbasis described above.

Ground Lease Terms

Registered land asset ground lease terms 603 detail the land use rightsconveyed to the leaseholder. The ground lease terms may restrict theleaseholder to specific compatible land uses consistent with landlocation and uses allowable under the law. All ground lease terms areassumable by any subsequent leasehold buyer or mortgage lenderexercising its contract rights.

Registered land asset underwriting standards may include ground leaselanguage and contract terms for land use. These may be consistent with arange of underwriting standards that government sponsored enterprisesand other secondary mortgage backed obligation product participants putupon leasehold mortgage collateral. Registered land asset underwritingstandards and ground lease terms may be adaptable for any land usepurpose to include open space, agricultural, multi-family, commercialand industrial land.

Other Registered Land Asset Contract Considerations

The value associated with an assignment of a registered land asset byits holder should not be greater than the registered land asset embeddedcall settlement price during such time as an embedded call is in force.Any excess assignment value, which exceeds the embedded call settlementprice, flows to the holder and/or its guarantors. An acknowledgment bythe holder accepting such a limit and liability should be a matter ofrecord on the electronic land title registry prior to any assignment ofany beneficial interest in a registered asset. Such acknowledgementshould be submitted to an electronic land title trustee, with a date ofrecord preceding any such holder assignment.

The leaseholder should insure the land title, naming the indenturetrustee as the insured party for any title insurance policy in effect.This preserves and keeps the title insurance in force irrespective ofwho holds beneficial interests in the registered asset. In this manner,the holder may be indemnified against loss or damage should mattersexist at embedded call expiration that are not shown in the titleabstract. The limit of holder indemnification during the embedded callterm is equal to the embedded call settlement price; excess insurancepayout flows to the leasehold estate. A free asset has no specifiedcontract redemption value; therefore a market value appraisal as of theembedded call settlement date may be necessary to update title insurancecoverage to protect both land and improvement property owners.

Large one-off transactions or registered land asset pools organized byany land use, duration or geographic location criteria make it possiblefor registered land asset pool investors to balance holdings for riskand ownership objectives. Master pools enable single pool tracking andreporting and allow a single set of documents to be used for both termand conduit series.

To change a land use after registered land asset contract originationshould require the written permission of the indenture trustee. Theleaseholder, at its expense, may give notice to appropriate parties via,perhaps, an issuer trustee. The indenture trustee may initiate anyrelated community land use application that would authorize any variancefor such land use application (distinct, perhaps, from homeimprovements). A substantive change in land use, outside the registeredland asset contract land use scope and without written indenture trusteeauthorization of such change, may result in a breach of ground leaseterms and may result in a registered land asset contract default.

In the event of a registered land asset contract default brought aboutby a leaseholder, any mortgagee of record may receive notice of theimpending default from the indenture trustee or its servicing agent. Themortgagee may exercise its right under contract to cure the default bysubmitting a mitigation plan to the indenture trustee or its servicingagent that, in the opinion of the indenture trustee, eliminates orcompensates for the default or compensates for any diminution of landvalue brought about by any leaseholder action, land use change or anyphysical or legal changes to the land.

Any diminution of land value brought about by leaseholder action may because for default. Deliberate leaseholder actions resulting in adiminution of value will trigger a leaseholder notice to remediate orother legal action brought about by the indenture trustee or itsservicing agent. Following a notice to cure, a servicing agent acting inbehalf of the indenture trustee may initiate an appraisal or anenvironmental engineering report at leaseholder expense, to examine anddocument evidence of leaseholder actions sufficient to support andconclude any diminution of value. Such a conclusion may initiate amortgagee notice to cure in advance of a notice of default. In anyevent, the extent of all damages due upon default should not exceed theembedded call settlement price plus expenses.

Mitigating leaseholder damages to a free asset contract may provide theholder of record other options to remediate leaseholder damages and torestore the market land value. Such options could include but are notlimited to the greater of an appraised land value as though undamaged orby calculating back to contract issuance the present value of theHolder's land sale proceeds at a prescribed cost of funds rate. Further,a mortgage lender with collateral at risk may initiate remediationefforts at the expense of the mortgagor. Absent a mortgage lien, aleaseholder default should result in the indenture trustee executing aprocess to remediate, which may include a lien on or taking possessionof the leasehold property.

Legal actions resulting in eminent domain, escheat, police powers orzoning restrictions (inverse taking or other public taking during theembedded call term) should entitle the holder to the same remunerationterms as an early retirement call described above. Excess valueattributed to the land should flow to the leasehold estate unlessotherwise provided for under contract provisions. A free asset holdershould be entitled to the full land value received in settlement of suchactions.

The Registered Land Asset Closing and the Electronic Land Title Registry

The registered land asset closing process is the actual land titleconveyance following origination and registered land asset contractagreement. The registered land asset closing brings together alldocumentation relevant to the bifurcation and transfer of propertyrights.

If an optional leasehold mortgage is given on the improvements above theland, the mortgage lender may prepare its own and separate documentationfor that purpose. Such documentation may include the HUD settlementstatement for any one-to-four family residential mortgage given. If aPPLM is used, then a single set of documentation may provide theleaseholder a single resource to all documents, including the HUDsettlement statement if applicable, and the lender certain proprietarycontract provisions, such as the early retirement call and otherprovisions, as noted above.

The registered land asset contract addendum, together with the HUDsettlement statement (if applicable) should account for all propertysettlement distributions and adjustments transferred between partiesduring the closing procedure. Registered land asset cash settlements maybe in electronic fund transfers where and whenever possible. Allfinancial distributions may be drawn from escrowed funds consistent withterms detailed in the HUD closing settlement statement and/or registeredland asset contract addendum.

The leaseholder or its agent should deliver a good and marketable landtitle ready for land court registry recording. That is, the land titleand deed should be free of all liens, clear of all claims and insurableunder an individual land title insurance policy or under a blanketregistered land asset insurance policy. As noted above, the cost ofinsurance may be borne by the leaseholder unless otherwise agreed to bythe sponsor or its agent.

Immediately following the title exchange and financial settlement, tworeal property titles, one for the land (the leased fee title) and onefor the improvements on the land (the leasehold estate title) exist.Legal and mechanical processes known in the art may be used to transferand record the leasehold and land titles in a local land court registryto consummate a “true sale” of real estate interests.

The indenture trustee (or its agent) records its land title deed (theleased fee title) at the appropriate local land court registry. Theleaseholder may also record the leasehold estate title, the embeddedcall, and the ground lease contract rights at the local land titleregistry where such recordings are permitted.

Recording the leased fee land title in the local land court registryserves to confirm the registered land asset contract date, from whichsubsequent anniversary dates may be measured. The registered assetidentifier (RAI) should also be recorded at the local land courtregistry. The leased fee title, once recorded in a local land titleregistry, is registered (generally by the indenture trustee) in theelectronic land title registry naming a holder to receive the beneficialinterests from the registered asset. The registered land asset contractis also registered in the electronic land title registry as a land titleencumbrance. Note that the holder of record in the electronic land titleregistry may also be the sponsor of the registered land assettransaction. The local land court title abstract, deed and RAI are alsorecorded in the electronic land title registry.

The electronic land title registry may be a special purpose entity(“SPE”). A registered land asset contract holder may be a variableinterest entity (“VIE”) and each registered land asset contract may be aconsolidated variable interest within the SPE. The SPE may be acorporation, a grantor trust or other trust or a limited liabilitycompany. Each registered land asset contract comprises certain variableinterests in assets and liabilities that flow to the capital investor asthe holder and primary beneficiary. The SPE has no financial stake,other than management fees, in any registered asset. The SPE may containa plurality of registered land asset contracts, each a free and clearland title encumbered by a registered land asset contract, each avariable interest within the SPE. The SPE should not have voting orsimilar rights in any real estate investment decisions. In this manner,the registered land asset is shielded from actions in bankruptcy andactions brought by creditors of the parties having an interest in theregistered asset.

The SPE, under management of an electronic land title trustee asregistrar, exists to record settlements between parties wishing toconvey registered land asset interests. The indenture trustee recordsconveyances of discrete registered land asset interests associated witheach RAI it manages by recording all conveyances between buyers andsellers of beneficial interests in a registered land asset contract. Theindenture trustee consolidates and reports all expected losses andexpected returns due a holder of a registered land asset interest, nomatter the financial form these expected losses and expected returnstake. The indenture trustee holds no beneficial interest in anyregistered land asset contract and lacks rights to receive residualreturns beyond any contractually specified servicing fees. An issuertrustee may represent the originator and/or the leaseholder, providing away for these participants to interact or arbitrate with the electronicland title registry registrar, indenture trustee, sponsor and/or holder.A transfer of assets within the SPE may be governed by local, state,federal or international laws and rules associated with such a transfer.

The RAI assigned to a particular registered land asset should also berecorded in the property transaction database such that it is linked toall relevant documentation that may be put into electronic format andstored in electronic form. The registered land asset contract addendumis part of that documentation as are all signed leaseholder disclosurestatements and contracts.

The indenture trustee may delegate the servicing of a registered landasset contract to a servicing agent. The servicing agent may become theprimary contact through which the leaseholder communicates with theindenture trustee. Typically, the servicing agent is responsible formonitoring the registered land asset contract terms and relatedfinancial transactions. The servicing agent may transmit registered landasset specific activity to the indenture trustee, and record suchactivity electronically on various network storage sites designated bythe indenture trustee (such as, for example, the property transactiondatabase and/or the location characteristics database).

A leasehold mortgage lender, when recording its mortgage liens oncollateral subordinated to any registered asset, should file with theelectronic land title trustee for the right to receive legal notices. Ifno such filing is on record at the electronic land title registry, thenthe mortgagee may send notice to the appropriate servicing agent orissuer trustee to communicate its desire to establish legal notificationof actions that affect the registered land asset underlying its mortgagecollateral.

Any registered lien holder wishing to initiate the purchase of aregistered land asset land title underlying its collateral may contactits issuer trustee or a servicing agent if one exists, of its desire toacquire the registered asset. The issuer trustee or servicing agent maycommunicate with the indenture trustee representing the holder withwritten copy sent to all registered lien holders as evidence of suchnotification.

The indenture trustee may notify the leaseholder and registered lienholders when and if the free asset land title becomes available. Anyoffers to purchase the free asset which are offered by the leaseholder,mortgagee or registered lien holder may be received by the issuertrustee or servicing agent. A leaseholder, mortgagee or other registeredland asset lien holder purchase offer may be given priority over a realestate brokerage listing.

FIG. 6 is a flow chart illustrating a method for establishing anelectronic land title registry in accordance with yet a furtherembodiment of the invention. A land title deed and a RAI related to theland associated with the registered land asset are recorded 701 in alocal land title registry. The RAI is stored 702 in a database incommunication with a computer network, such as the electronic land titleregistry. The stored RAI may then be appended 703 to include informationrelating to the registered asset.

Electronic Land Title Registry Functions

An electronic land title trustee may manage the electronic land titleregistry and maintain electronic land title records for all registeredland asset contract transactions. Ownership rights may be givenseniority in accordance with the time one is sold, resold, traded orexchanged. This enables capital market and the real estate marketparticipants to efficiently sell, trade, or hold the land titles withoutimpacting the rights of a leaseholder occupying the underlying land.

Among other purposes, the electronic land title provides means for:tracking registered land asset contractual rights and reporting;tracking the ownership of and changes to beneficial interest in theregistered land asset contracts obligations and receipts; tracking theownership and changes to leasehold estate interest under a registeredland asset contract (such as land use changes and other amendments tothe original lease and contract agreements); and maintaining therecorded data to facilitate registered land asset release.

The electronic land title registry also serves to facilitate registeredland asset liquidity and to streamline the land title tracking processby using electronic registration to eliminate paper. All registered landasset contracts issued in the United States, and in territories andcountries where registered assets are legally issued should beregistered in the electronic land title registry system. The electronicland title registry serves to maintain the indenture trustee as thenominal owner on record no matter how many times registered land assetcontract rights trade or its beneficiaries change.

The electronic land title registry provides means to track subsequentownership transfers of and encumbrances on each individual registeredasset, until its final settlement, wherein the indenture trustee mayfile an electronic land title discharge and the land returns to a feesimple estate. The electronic land title registry also serves tosimplify investor certification and due diligence requirements viainformation transparency. Such transparency enables proactive riskassessment and improves risk management for investors, broker/dealers,interim funding/warehouse sponsors and investors. Such transparency alsofacilitates effective management of registered land asset contractpools. The electronic land title registry provides real-time/on-lineaccess to registered land asset information, resulting in faster tradingresponses that make capital market trading of real property interestsefficient.

The electronic land title registry should receive legal service ofprocess relative to foreclosure filings, tax liens, or lease default byRAI. Notices of legal actions may be imaged and forwarded, whereappropriate, to the indenture trustee, servicing agent, and othersrequesting notice from the electronic land title registry. A servicingagent, perhaps acting through a resolution from the SPE and withauthorization from the indenture trustee, takes lease default actions inthe name of the holder.

The indenture trustee may certify officers of the servicing agent toexecute the estoppel certification, lien releases, and deed and titletransfer documents. The servicing agent, with authorization from anindenture trustee, may prepare and file lien release and title transferdocuments to the local land title registry.

The electronic land title registry may employ stringent securitycontrols so that only the transaction participants that own, service orhave a security interest in the registered land asset contract have thecapability of updating the data. The electronic land title registry mayalso employ security controls limiting data access to a “need to know”basis. Integrity controls may provide authorized transactionparticipants with electronic confirmation of all data submissionsthrough the use of time/date stamps and journaling. The electronic landtitle registry may also serve to provide audit trails to ensureconfirmation of notification from appropriate parties.

In addition to the basic online data service and other servicesdescribed above, the electronic land title registry may serve to providereporting on a periodic or ad hoc basis by VIN and password access tothe relevant network databases (such as the property transactiondatabase for trustees, settlement agents, and other vendors). Lowerlevel access privileges may be provided to other market participantslike real estate brokers and the general public. Browser-based, securedaccess may be provided to sponsors, title companies, county recordersand others in the electronic land title registry vendor network withdynamic links to vendor sites (if applicable). Customerservice/technical vendor support may be provided through interactivesystems to include frequently asked questions and email response andother value-added services.

As noted above, accredited lenders and other participants in themortgage finance industry may originate registered land asset contractsand the electronic land title registry offers these participants newrevenue opportunities. Title industry and settlement agents benefitbecause the electronic land title registry provides easy access to landtitle information. Local land title registry researchers and recordersbenefit from the electronic land title registry by subscribing toelectronically transmitted land title transfer data. Leaseholdersbenefit from the electronic land title registry because the electronicland title registry provides real-time access to the issuer trustee orcurrent servicing agent and expedites communication between parties.

Registered Asset Identifier (RAI)

The electronic land title registry requires every registered land assetto be assigned a unique registered asset identifier. The RAI shouldseldom be, if ever, retired and should not be duplicated or reused. TheRAI may be 18-digit alphanumeric or numeric geo-referenced address. Ageo-referenced address is representative of the global coordinates forany given location.

As an example, the RAI may be a Universal Transverse Mercator (UTM) gridcode accurate to one meter or may map into such a geo-referencedaddress. Such an identifier may be determined through Global PositioningSatellite (GPS) instrumentation or manually from US Geological Survey(USGS) maps. Each address is unique and permanently represents theregistered land asset land parcel.

If the registered land asset contract is settled and re-originated, thesame RAI should apply to the renewed contract. Because the land parcelis immobile, the geo-referenced RAI should never change. The registeredland asset originator should establish the identifier as part of itsorigination process. A licensed independent appraiser, a licensed surveyengineer or other qualified individual may produce the RAI quickly andaccurately.

Sequential Equity Allocation Lien (SEAL)

A sponsor, upon the initial transfer of registered land asset beneficialinterest to a holder, may append to each identifier it underwrites a“Sequential Equity Allocation Lien” (SEAL). A registered land asset SEALis an electronic land title registry recording number that may consistof 14 alphanumeric or numeric characters. For example, 14-character SEALidentifier may register three distinct information elements: six digitsfor date, four digits for time and four digits for a document typenumber. Each SEAL may be appended with a seven-digit number to track theorganization registering the SEAL and an eight-digit alphanumeric ornumeric number identifying the document preparer. A document preparermay manually enter the document type code or the document type code canbe automatic depending on the transaction.

The document type code can represent any document type available. Forexample, a document type code could represent a title transfer. When asponsor or co-sponsor sells a registered asset, and the transaction isrecorded in the electronic land title registry, the document type can beassigned automatically. Certain document types, such as, for example, afinancial attachment may require manual entry. The electronic land titletrustee may establish the document type codes, the correspondingalphanumeric or numeric index numbers, and recording requirements.

Vendor Identification Number (VIN)

A vendor organization, which may be a registered land asset originatorand/or registered land asset servicing agent, may be assigned a uniquevendor identification number (VIN). Each of the vendor's documentpreparers may receive an alphanumeric or numeric user identificationcode and a corresponding alphanumeric or numeric user password thatauthorizes responsible persons within each organization to transmitregistered land asset data into the electronic land title registry.

A registered land asset VIN should not change and should not bereassigned. If a servicing agent contract transfers from the originatorto another vendor, the VIN of the entity that currently services theregistered land asset changes, but the original RAI identifier remainsunchanged, as does the archive with the prior VIN assignment. A VINshould remain a permanent record attached to any SEAL. This provides atransparent audit trail and continuity if an electronic land titletrustee must arbitrate a recording if challenged.

Other numbering sequences are possible. The following is an example ofthe data a vendor may submit to enter or to modify a registered landasset transaction:

Max Field Name Description Data Type Length Required Submit_orgidOrganizational Alphanumeric 7 Yes Vendor or Numeric IdentificationNumber (VIN) Vendor preparing and submitting the documentationregistration request Submit_uid Authorized Alphanumeric 8 Yes VendorUser ID or Numeric (UID) Submit_upw Authorized Alphanumeric 12 YesVendor User's or numeric Password Submit_rai Registered AssetAlphanumeric 18 Yes Identifier (RAI) or numeric Submit_seal SequentialEquity Alphanumeric 14 Yes Allocation or numeric Lien (SEAL)

FIG. 10 is a block diagram illustrating a system for providing aregistered asset. In accordance with this embodiment, an electronic landtitle registry 1101 is in communication, via a computer network (whichmay be a local access network, a system access network or a wide accessnetwork such as the Internet), with a property transaction database 514and a location characteristics database 511. An electronic land titletrustee 1106 may have direct access to the electronic land titleregistry 1101. A registered land asset issuer 1100, servicing agent1105, originator 1103, issuer trustee 1107, indenture trustee 1104,sponsor 1102, holder 1109, and co-sponsors and market makers 1111 mayhave access to the electronic land title registry 1101 and networkdatabases (including but not limited to the property transactiondatabase 511 and the location characteristics database 514 via thenetwork. The general public 1108 and/or the real estate marketplace 1110may also be given access to the registered land asset network.Communication between the various above referenced parties may also beprovided via the network.

The originator 1103 is the primary point of contact for a potentialleaseholder desiring to collaboratively purchase a property under aregistered land asset contract, or a current landowner wanting to issuea registered land asset contract. The originator 1103 generallyestablishes the RAI at origination and is responsible to put the newland title and RAI on record in the local land title registry, namingthe indenture trustee assigned by the sponsor as the nominee.Originators subsequently register the RAI on the electronic land titleregistry, if authorized by the electronic land title trustee. Registeredland asset originators may transmit and register documentation to theelectronic land title registry through an Internet browser interface orthrough a system-to-system interface. Registered land asset originatorsmay transmit and record all land title documentation directly into theproperty transaction database through, for example, an Internet browserinterface or through a system-to-system interface. Originators mayprovide the indenture trustee all original registered land assetcontract documentation, along with certain other property-relatedinformation when recording registered land asset contracts. A RAIcertification may contain a comprehensive list of all property relatedrecordings, to include the recording date and time, and the land titleregistry “book and page” or other land registration numbers for eachdocument assigned to it by the local land court.

A servicing agent 1105 may notify the appropriate indenture trustee 1104and other interested parties by filing a SEAL for all subsequent RAIliens or any legal service of process. Among these are any filingsrelative to foreclosure, tax liens, lease defaults, or claim releasesfrom parties who have previously recorded an interest against aregistered land asset in an electronic land title registry.

Servicing agents may also record changes of and to leasehold ownershipinterests to the property transaction database by the RAI once a RAI isregistered to the electronic land title registry. If for example, theleasehold estate is sold, servicing agency rights are transferred, aregistered land asset goes into default, or other changes to theregistered asset's legal or contractual status occurs, the servicingagent reflects these changes, among others, in the informationmaintained on the property transaction database 511, which should alsoreflect any legal service of process recorded to the electronic landtitle registry 1101.

As mentioned previously, authorized registered land assetoriginators/servicing agents may have access to information maintainedon the electronic land title registry 1101 on a “need-to-know” basis.Trustees representing the leaseholder (such as the issuer trustee 1107)and the holder (such as indenture trustee 1104) have access toinformation maintained on the electronic land title registry 1101 on a“need-to-know” basis. The electronic land title trustee 1106, whomaintains the SPE, should have high-level access rights to theelectronic land title registry.

A registered land asset sponsor 1102 may be any individual or entitywith the financial resources at its disposal to underwrite and originatea debt free registered land asset through a qualified registered landasset originator. Typically, a sponsor 1102 will take delivery ofregistered assets, which it holds as primary beneficiary or until it'sresold for profit to other entities or individual investors. FIG. 9 isblock diagram illustrating examples of registered land asset sponsorqualifications and considerations.

A sponsor 1102 should have at its disposal the facilities to service itsinvestors (FIG. 8 is a block diagram illustrating examples of registeredland asset investor qualifications and considerations.) A sponsor 1102may be directly responsible for the distribution of its registered landasset contracts throughout its syndicate. A sponsor 1102 may, via itsindenture trustee, clear all registered land asset purchases with theelectronic land title registry. The sponsor 1102 may handle marketing,sales execution and delivery of registered land asset contracts to highnet worth investors or institutions. Each RAI recorded in the electronicland title registry may show the sponsor as the initial beneficial ownerof a registered asset. If a sponsor transfers a registered land asset toa holder 1109, the holder may receive an account statement from thesponsor on, for example, a quarterly and annual basis.

Sponsor functions may include: making structural recommendations toregistered land asset originators; coordinating rating agencynegotiations concerning registered land asset products; overseeing theregistered land asset documentation process; managing the registeredland asset distribution process; coordinating any co-sponsors and marketmakers 1111; maintaining an active and supportive secondary market forfuture registered land asset offerings; establishing workingrelationship with real estate brokerage outlets; coordinating like-kindexchanges for registered assets by providing Qualified ExchangeAccommodation Arrangements (QEAA), (IRC, Section 1031); and maintainingan active and supportive secondary market for future offerings ofregistered assets.

The electronic land title trustee 1106 is responsible for maintainingthe technological environment necessary to record and track alltransactions generated by a plurality of sponsors and co-sponsors. Eachregistered land asset transaction will generate a plurality of documentsthat the electronic land title registry trustee 1106 should capture,process, store, maintain and output transaction data as accessible andretrievable archives. The electronic land title registry trustee (1106should be responsible for maintaining the official list of all SEALidentifiers, by establishing and maintaining document type codeidentifiers as set from time to time under the SPE charter. Theelectronic land title registry trustee (1106 should be responsible forvendor certification. Distribution of VIN identifiers may be awardedbased on competence and other criteria set from time to time under theSPE charter.

The electronic land title registry trustee 1106 should be responsiblefor user identification codes and user certification and passwordmanagement. Distribution of user identification codes may be based oncompetence and other criteria set from time to time under the SPEcharter. The electronic land title registry trustee 1106 should alsoensure that each registered land asset contract is assigned a RAI, thateach RAI is unique and that each RAI links a particular land title toits primary land court registry (county recorders office) book and pageor land court registration entry.

The electronic land title registry trustee 1106 should ensure that eachrelated transaction, for example any transfer of a variable orfractional land title interest, receives a SEAL identifier. A SEALidentifier allows the electronic land title trustee 1106 to quicklydetermine the when, who and what of pending issues on any registeredland asset contract by its identifying SEAL.

Relying on easily acceptable archival records, the electronic land titletrustee 1106 may act as one member of a three-member arbitration panelempowered to resolve contested title issues.

The electronic land title trustee 1106 should maintain electronic landtitle registry transparency. Each RAI may provide a reference into theproperty transaction database 511 wherein the electronic land titletrustee 1106 can locate all property specific documentation such as adeed, estoppel certification, appraisal reports, registered land assetcontract documents, discharges, and other appropriate documents. EachRAI has a SEAL archive, listing all transactions between investorstracking any beneficial interest transfers subsequent to the registeredland asset contract conveyance and registration in the electronic landtitle registry.

Upon final settlement of a registered land asset and upon authorizationfrom an indenture trustee 1104 following its consolidation of SEALidentified records relating to each outgoing registered asset, theelectronic land title registry trustee 1106 should ensure that anestoppel certificate and electronic land title discharge is filed ontothe electronic land title registry 1101. These recorded documents may bethen forwarded to the leaseholder (or his agent) for recording at anappropriate land court registry. The documents should also be filedunder the RAI in the property transaction database.

An issuer trustee 1107 may be an attorney or any qualified vendor withqualifications defined by an electronic land title trustee 1106. Theissuer trustee 1107 may have minimal on-going involvement in registeredland asset title conveyance and no on-going transactional activitywithin the SPE. The issuer trustee 1107 is the primary point of contactfor the leaseholder, through whom the leaseholder (or its agent) 1100may interface with appropriate entities concerning any aspect ofregistered land asset contract terms.

The originator 1103 may appoint an issuer trustee 1107 following aregistered land asset origination. If a leaseholder gives a mortgage,the issuer trustee 1107 represents the mortgage lender acting asoriginator. If no mortgage is given the issuer trustee represents theleaseholder. A leaseholder wishing to address any matter concerning aregistered land asset it issued, may direct the matter to the issuertrustee directly when no mortgage exists or while a mortgage is inforce, via counsel representing the leaseholder.

In an event of a leasehold mortgage default, the issuer trustee may actas one member of a three-member arbitration panel empowered to resolvecontested issues, and is responsible to the mortgagee and to ensuredefault resolution in the most effective and legal manner.

The indenture trustee 1104 holds the land titles as nominee andrepresents the sponsor 1102, registered land asset co-sponsors andmarket makers 1111 and its investors (such as holders 1109). Theindenture trustee 1104 has involvement with on-going registered landasset transactions. The indenture trustee 1104 should make principal andrental income distributions to holders and retains signature authorityto the registered land asset land titles and all documentationconcerning the land title deed. The indenture trustee 1104 shouldmaintain archival records of property deeds, estoppel certifications,appraisal reports, registered land asset contract documents and otherappropriate documents. When a land title conveys to a leaseholder,perhaps exercising its embedded call or other purchase rights, theindenture trustee 1104 (either the indenture trustee of record or analternative and qualified indenture trustee appointed by the electronicland title trustee 1106) may prepare estoppel certification and a landdeed suitable for recording the redemption at the appropriate local landcourt registry. The estoppel certificates may serve to clear the titleof any and all registered land asset contract encumbrances andtransactions occurring over the contract's duration, including alltransactions occurring during the time when the registered land assetcontract was held by the indenture trustee as nominee.

In the event of a registered land asset contract default, the indenturetrustee 1104 may be in charge of making sure the sponsor 1102,co-sponsors and market makers 1111, the holder 1109 and subordinatedinvestors if any, get resolution in the most effective manner by actingas one member of a three-member arbitration panel empowered to resolvecontested title issues.

Final Settlement of the Registered Land Asset Contract

Final registered land asset settlement occurs under severalcircumstances: 1) the leaseholder exercises and settles its embeddedcall opting to purchase the land title underlying its leasehold estate;2) the leaseholder purchases the land title underlying its leaseholdestate as a market transaction after the embedded call expiration date;3) the holder takes possession of the leasehold estate either byacquiring leasehold rights or as a result of leasehold default; 4) thecontract ground lease expires, terminating the tenancy; or 5) legalactions commence resulting in eminent domain, escheat, police powers orzoning restrictions (inverse taking or other public taking)

The described embodiments of the inventions are intended to be merelyexemplary and numerous variations and modifications will be apparent tothose skilled in the art. All such variations and modifications areintended to be within the scope of the present invention.

Various embodiments of the invention may be implemented in anyconventional computer programming language. For example, the variousembodiments may be implemented in a procedural programming language (forexample, “C”) or an object-oriented programming language (for example,“C++”). Similarly, embodiments of the invention may also be implementedas preprogrammed hardware elements (for example, application specificintegrated circuits or digital processors), or other related components.

Embodiments of the invention may be also implemented as a computerprogram product for use with a computer system. Such implementation mayinclude a series of computer instructions fixed either on a tangiblemedium, such as a computer readable media (for example, a diskette,CD-ROM, ROM, or fixed disk), or transmittable to a computer system via amodem or other interface device, such as a communications adapterconnected to a network over a medium. The medium may be either atangible medium (for example, optical or analog communications lines) ora medium implemented with wireless techniques (for example, microwave,infrared or other transmission techniques). The series of computerinstructions preferably embodies all or part of the functionalitypreviously described herein with respect to the system.

Those skilled in the art should appreciate that such computerinstructions can be written in a number of programming languages for usewith many computer architectures or operating systems. Furthermore, suchinstructions may be stored in any memory device, such as semiconductor,magnetic, optical or other memory devices, and may be transmitted usingany communications technology, such as optical, infrared, microwave, orother transmission technologies. It is expected that such a computerprogram product may be distributed as a removable medium withaccompanying printed or electronic documentation (for example, shrinkwrapped software), preloaded with a computer system (for example, onsystem ROM or fixed disk), or distributed from a server or electronicbulletin board over the network (for example, the Internet or World WideWeb).

1. A system for establishing an electronic land title registry, thesystem comprising: a Registered Asset Identifier (RAI) including ageo-referenced address based on a global coordinate position thatspecifies locations on the surface of the Earth corresponding to landsubject to a land title deed, wherein the land title deed and the RAI isrecorded in association with one another in a local land court so as tolegally associate the land title deed with the RAI; an electronic landtitle registry database operatively connected with a party-accessiblecomputer network, to which the RAI is transmitted, in communication witha land title registry process that is adapted to store electronicdocuments associated with the RAI and allow retrieval of the documentsbased upon entry by an accessing party of predetermined informationassociated with the RAI; means for transmitting, over theparty-accessible computer network, an electronic version of a land titledeed and a registered land asset contract associated with the land to berecorded in association with the RAI as a registered land asset, whereinthe registered land asset defines both a leasehold estate subject to alease and a purchase option and the land subject to the land title deedupon which the leasehold estate resides, wherein the registered landasset contract provides a leaseholder an option to purchase the land byan end of a given term and the registered land asset is available forpurchase by a purchasing party and sale by a selling party by accessingthe corresponding RAI through a database that is available via a networkso as to facilitate one of either a purchase transaction or saletransaction; means for transmitting, over the party-accessible computernetwork, from a recording party the electronic version of a land titledeed and the registered land asset contract associated with the land tobe recorded in association with the RAI as the registered land asset;means for receiving, over the party-accessible computer network, andappending other information, from an appending party, relating to theregistered land asset and corresponding RAI, wherein the otherinformation includes appraisal information related to an appraised valuethe land subject to the land title deed including at least (a) a marketground rent of the land subject to the land title deed, (b) a landcapitalization rate, and (c) a fee simple land value of the land subjectto the land title deed and the leasehold estate; means for interimpricing, in communication with the land title registry database, thatdetermines a community score (cScore) that modifies the calculatedmarket land value for each registered land asset based uponexternalities associated with a property underlying the registered landasset including associated community data, the cScore being associatedwith each registered land asset within a community subject to thecommunity data; a mechanism that performs, at a subsequent time, for asubsequent accessing party, over the party-accessible computer network,with respect to and in communication with the electronic land titleregistry database, at least one of (a) retrieving, (b) verifying, (c)analyzing, and (d) gathering appended information associated with theregistered asset in association with the RAI and the cScore; and meansfor clearing and settlement of (a) the registered land asset, (b) therecorded land asset contract, and (c) the appended informationassociated with the registered land asset and corresponding RAI, theclearing and settlement being facilitated, at a subsequent time, overthe party-accessible computer network, by at least one of the recordingparty, the appending party, the accessing party, and the subsequentaccessing party.
 2. The system as set forth in claim 1 wherein thecScore further defines a measure of material impacts on the land titledeed associated with the RAI, based upon dynamic external economies anddiseconomies associated with the community and other location-relatedexternalities, that is adjustable over time, the cScore being recordedwith predetermined information and electronic documents associated withthe RAI so as to provide each of the accessing party and the subsequentaccessing party qualitative and quantitative information associated withthe RAI.
 3. The system as set forth in claim 2 further comprising meansfor updating the cScore based upon updated information at a subsequenttime.
 4. The system as set forth in claim 1 wherein the geo-referencedaddress comprises a universal transverse mercator (UTM) grid code. 5.The system as set forth in claim 1 wherein the RAI is appended with asequential equity allocation lien (the “SEAL”) identifier.
 6. The systemas set forth in claim 5 wherein the SEAL identifier includes at leastone of (a) a date associated with the SEAL identifier, (b) a timeassociated with the SEAL identifier, (c) a document associated with theSEAL identifier, (e) a document type associated with the SEAL identifierand (f) a document preparer associated with the SEAL identifier.
 7. Thesystem as set forth in claim 1 wherein the RAI is appended with a vendoridentification number (the “VIN”).
 8. The system as set forth in claim 1further comprising means for recording an assignment of the registeredland asset associated with the registered land asset contract inassociation with the RAI in the electronic land title registry.
 9. Thesystem as set forth in claim 1 further comprising a property transactiondatabase, associated with the electronic land title registry databaseconstructed and arranged to allow access over the communications networkby each of the recording party, the accessing party, the subsequentaccessing party and the appending party, by providing informationrelated to transactions associated with each RAI.
 10. The system as setforth in claim 9 further comprising a location characteristic databaseassociated with the electronic land title registry database thatprovides socioeconomic data associated with each RAI.
 11. The system asset forth in claim 10 further comprising means for calculating valuesfor each registered land asset so as to generate a market land valueassociated with the RAI on the basis of information from the propertytransaction database and the location characteristic database.
 12. Thesystem as set forth in claim 11 further comprising an option pricingprocess that employs the market land value to generate an option pricefor the leaseholder to purchase the land, and means for appending theoption price in association with the RAI in the land title registrydatabase.
 13. The system as set forth in claim 1 wherein the interimpricing process approximates the cScore for each registered land assetin an absence of a predetermined amount of the community data ortransaction data with respect to the registered land asset.
 14. Thesystem as set forth in claim 13 further comprising means for offeringthe registered land asset contract via the land registry database forpurchase thereof, and means for associating the investor as a partycapable of accessing the registered land asset database over thecommunications network.
 15. The system as set forth in claim 14 whereinthe electronically stored registered land asset contract associated withthe RAI defines a financial instrument adapted for public trading andelectronic exchange.
 16. The system as set forth in claim 1 wherein atleast one of the accessing party and the subsequent accessing party isat least one of a holder of a leasehold estate on the registered landasset or a land asset investor.
 17. The system as set forth in claim 1wherein the interim pricing process includes means for obtaining,through the party-accessible computer network, at least two of: (i) amarket value of the land subject to the land title deed, (ii) a marketground rent associated with the land subject to the land title deed,(iii) a land capitalization rate associated with the land subject to theland title deed, and means for calculating a price associated with anoption to purchase the land subject to the land title deed at the end ofa predetermined term.
 18. The system as set forth in claim 17 whereinfurther comprising means for obtaining, through the party-accessiblecomputer network, with respect to the land subject to the land titledeed, at least one of a purchase option term, a prevailing investor costof capital, prevailing mortgage market terms, a market land valueappreciation rate, and means for calculating a land investment valueassociated with a purchase of the land subject to the land title deed.19. The system as set forth in claim 1 wherein the land subject to theland title deed is separate from ownership of improvements residing uponthe land subject to the land title deed and further comprising animprovements title deed that is conveyed on the improvements and isassociated with the RAI.